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Email of the day

On the 9th November seminar presentations:

Dear David Sadly I was unable to attend your 9th November jamboree, are you going to share with us non attendees what the delegates revealed. I am especially interested in closed-ended funds. Here is hoping Kind regards

I hope to receive guest speaker Bruce Albrecht’s excellent presentation on the Middle East, with permission to post it.

Iain Little’s presentation on Investment Trusts is posted in the Subscriber's Area.

We hope to see you on Monday 28th January, when Iain and I will be speaking once again. I am also pleased to say that Dr David Brown will be our guest speaker, talking about Technology and his investing methodology.

Musings from the Oil Patch November 3rd 2015

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB which may be of interest to subscribers. Here is a section:

Self-driving vehicles may be the answer. Researchers at the University of Texas have conducted a realistic simulation of vehicle use in cities that took into account traffic congestion and rush-hour use. They found that if our vehicle fleet was fully autonomous, every shared autonomous vehicle could replace 11 conventional vehicles. As their study showed, the world would only need 800 million vehicles to supply transportation services for nine billion people, or 200 million fewer cars than what already exists in the global vehicle fleet. That doesn’t sound like a bright future for either the automobile or petroleum industries.

The UT simulations showed that riders would wait for an average of 18 seconds for an autonomous vehicle to show up. Each vehicle would serve 31-41 travelers a day. Importantly, less than 0.5% of travelers waited for more than five minutes for an autonomous vehicle to arrive. Equally important, shared autonomous vehicles reduce the average cost of an individual’s travel by as much as 75% versus a conventional driver-owned vehicle.

A global vehicle fleet of autonomous vehicles could easily be electrified since they would be able to go off to be recharged and cleaned during periods of low demand without sacrificing service quality for travelers. We know that one of the key objectives of autonomous vehicles is for them to be able to travel faster, in tighter spacing and in smaller-sized units. This means that we will need less material for constructing these vehicles with a favorable impact on overall energy and material needs besides less fuel. Here is another example of savings from fewer vehicles due to an autonomous vehicle fleet. We would also have fewer vehicles needing to be parked, which means that upwards of 20% of urban land currently devoted to parking could be transformed into close-in housing and businesses. Increased urban density could further reduce overall energy demand by boosting the use of mass transit.

While Dr. Smil is concerned about the increasing cost of extracting energy and materials due to their capital intensity, which could doom our economy by subjecting it to increasingly more expensive fossil fuels for decades into the future, what would happen if our energy future follows a deployment path similar to that of information technologies? Several decades ago, prognosticators did not foresee how the world would skip over the building of landline telephone infrastructure and go directly to cellular phones. In 2014, there were only 1.1 billion fixed telephone landlines worldwide compared to more than seven billion cellular phones. Equally as impressive is how much the cost to make these phones has declined during the transition.

Let’s consider how supply and demand impact the market for a new Technology. I can own any number of cars I wish but I can only drive one at a time. Autonomous vehicles remove that limitation so I could send the car out to collect dinner while I go to the bank personally. Of course if Uber remains a viable business in a decade then I could simply have a roaming vehicle pick up my dry cleaning, have another pick up my lunch and another pick up my groceries. The car I choose to drive will be for comfort, style and cache while other vehicles will be the proverbial work horses.

Lloyd George Advisory

Thanks to a subscribers for this report which makes a number of interesting points on the potential for Chinese overseas investment. Here is a section:

I have compared Shanghai in 2015 to Boston in 1970 with the genesis of the investment industry led by Fidelity and other major fund management houses. Apart from the US$3.5 trillion of China’s official reserves, there is another US$9 trillion in Chinese household bank deposits. In November, I expect that the IMF will certify the renminbi as one of the 5 global reserve currencies in the SDR (Special Drawing Rights). China must respond, by liberalizing its capital account over the next 12 months, and allowing its citizens to invest more overseas. Even if (a conservative estimate) 20% of the total savings in China were to be invested overseas, it will have the effect of a major wave of capital coming into global financial markets led by Hong Kong (which we see as the prime beneficiary), but followed by London, New York, and other major financial centers.

This time Chinese capital will not only target property, it will be invested in companies, in Technology, in western consumer brands, and in good quality dividend paying shares in the US, Canada, UK, Australia, and elsewhere. The example of Li Ka-shing is not irrelevant. He has been criticized by commentators for taking money out of China and investing it in these Anglo-Saxon jurisdictions, in telecom, water, and power utilities. In my view, he is a very smart, canny, and far-sighted investor. (This month, our research team visited Mr Li’s flagship company, CK Hutchison and were encouraged that their Watson’s pharmacy chain is opening 365 new shops each year in China.)

I believe that the liberalization of the Chinese financial sector is the biggest thing happening in the global capital markets in the next decade. Comparisons may be drawn with Japanese capital in the 1980s, but this Chinese wave is 10 times bigger and will last a lot longer. As yields on RMB deposits are steadily reduced (and the same in Indian rupee deposits), so the thirst for yield will bring Chinese investors, as it once did Japanese investors (the famous Mrs Watanabe) into western equities.

The announcement last month that the wide difference between the Chinese lending and deposit rates would be liberalised is a major step for financial sector but if the below spread is any guide there has been little progress so far.

At a spread of 275 basis points the banking sector does very well from this situation but depositors are de-incentivised from holding cash. This has contributed to the casino nature of the stock market and also to the growth of the shadow banking system. Allowing banks to compete for deposits by raising interest rates would be a positive development for the economy and would help dispel some of the opacity that plagues the sector.

Update on driverless tractor technology

Thanks to a subscriber for this Facebook post which may be of interest. Here is a section:

We also visited a contractor using the system for jobs such as GPS mapped precision drilling of new orchard plantings and composting as well as for spraying and mowing. His feedback was that with an Operator in the cab you have a limited amount of time at 100% accuracy and optimum ability, it then starts to decrease. With the ProbotIQ system the precision does not alter. He also said that problems with shortages of and unreliable labour were solved with this system. He has a second system on order.

We spent time operating tractors and using the 'Teach and Playback' Technology, programming routes and manoeuvres and such things as turning the sprayer on and off, PTO on and off and selecting engine speeds. It then replayed exactly what we had recorded of its own accord without anyone in the cab. We tested it in various ways such as putting an obstacle in the way which it detected once it was ten metres away and then stopped at 1.5 metres away. The system would have checked again at three minutes and restarted if the obstacle had gone, but as we were there we were able to set it going again remotely.

Autonomous vehicles have been in place at mining operations for quite some time and Technology has improved enough that they can now be used in the agriculture sector. As demand increases costs should fall which would make the Technology even more accessible.

Toyota Starts $1 Billion Center to Develop Cars That Do Not Crash

Toyota Motor Corp. is spending $1 billion to form a research institute focused on the artificial intelligence and robotics Technology it needs to make cars that can overcome driver errors and reduce traffic fatalities.

Toyota Research Institute Inc. will pitch in on the safety systems the automaker is developing to curtail car accidents that kill 1.25 million people per year worldwide. The company will also work toward making it easier for elderly drivers to hang onto their keys in aging countries including Japan and the U.S., Toyota’s biggest markets.

Getting an edge in this research would set Toyota apart from its Japanese peers, which have been pursuing fully autonomous cars under more conservative time frames than Google Inc. or Tesla Motors Inc. With Toyota President and racing enthusiast Akio Toyoda by his side, the newly-formed R&D unit’s chief executive said competing to put autonomous cars on the road will be an endurance contest, rather than a sprint.

After the VW scam it is nice to focus on positive developments in the automobile sector.

I assume that every automobile manufacturer of any consequence is busily developing new safety features, including autonomous driving. This is mostly due to Technology, of course. Beyond any doubt we are now in the most exciting era ever for automobiles.

Exxon Predicted the Present Cheap Solar Boom Back in the 1980s

For more than a generation, solar power was a environmentalist fantasy, an expensive and impractical artifact from the Jimmy Carter era. That was true right up until the moment it wasn't. Solar silicon prices dropped 94 percent from early 2008 to the end of 2011. Crystalline silicon has since fallen an additional 47 percent, to $15.20 a kilogram.

Many were caught off guard by the emergence of solar as a competitive power source. The scientist who led Exxon's research arm back in the 1980s wasn't one of them.

Peter Eisenberger, now an environmental science professor at Columbia's Earth Institute, co-authored an internal report for Exxon projecting that solar wouldn't become viable until 2012 or 2013. The report, written before he left the company in 1989, suggested that Exxon would do best to sell its solar assets; not surprisingly, the company did just that. What is surprising is that Exxon's 25-year-old solar projections nailed the timing for the arrival of affordable solar power.

And:

Eisenberger left for academia and in 2010 co-founded a alternative-energy company, Global Thermostat, at which he now serves as chief Technology officer. The company works to reduce the cost of capturing atmospheric carbon dioxide and rendering it useful for synthetic fuels and materials. "Almost all the people that are involved in founding this company—and in helping me get going—were from Exxon," Eisenberger said. "Every one of them. They're the only people who didn't think I was nuts."

Exxon and the other large international oil companies are also working on the commercial capturing of atmospheric carbon dioxide, and understandably so. Unless it can be effectively and cheaply removed and used profitably for something else, oil and other fossil fuels will increasingly be regarded as pariahs.

Saudi Wells Running Dry of Water Spell End of Desert Wheat

For decades, only a few features punctuated the vastness of the Saudi desert: oil wells, oases -- and wheat fields.

Despite torrid weather and virtually no rain, the world’s largest oil producer once grew so much of the grain that its exports could feed Kuwait, United Arab Emirates, Qatar, Bahrain, Oman and Yemen. The circular wheat farms, half a mile across with a central sprinkler system, spread across the desert in the 1980s and 1990s, visible in spring to anyone overflying the Arabian peninsula as green spots amid a dun sea of sand.

The shift toward imports, which started eight years ago, is reverberating beyond the kingdom, providing business opportunities for grain traders such as Cargill Inc and Glencore Plc as well as for farmers in countries such as Germany and Canada.

"The Saudis are the largest new wheat buyer to emerge," said Swithun Still, director of grain trader Solaris Commodities SA in Morges, Switzerland.

Ahmed bin Abdulaziz Al-Fares, managing director of the Grain Silos and Flour Mills Organization, the state agency in charge of cereal imports, told an industry conference in Riyadh last month that Saudi Arabia will import 3.5 million metric tons in 2016. That’s a 10-fold increase from about 300,000 tons in 2008, the first year local crops were curtailed. An agency presentation says the kingdom will rely on imports for "100 percent" of its wheat in 2016 for the first time.

By 2025, demand is forecast to rise to 4.5 million tons as population growth drives demand for flour, positioning Saudi Arabia as one of the 10 biggest wheat buyers worldwide.

The shift is propitious as the wheat market weathers the largestglut in nearly 30 years, with bumper harvests filling up silos from Russia to Argentina. Prices for high-quality wheat, which reached an all-time high in Kansas City of more than $13 per bushel in 2008, have fallen to less than $5 this year.

Too low aquifers for irrigation of desert wheat; too low oil prices to balance the Saudi budget. For many Saudi citizens used to the comfortable but rigidly controlled life this must feel like a plague.

The Saudis were behind the slump in oil prices, by increasing production to lower prices deliberately in a desperate attempt to knock out the US shale industry. However, in fairness to the Saudis, they were defeated by the advance of Technology. Moreover, they inadvertently encouraged not only oil discovery and drilling technologies, from shale to deep water projects, but also the renewable energy industries by keeping oil prices high for as long as they could.

Paris Climate Deal to Ignite a $90 Trillion Energy Revolution

The fossil fuel industry has taken a very cavalier bet that China, India and the developing world will continue to block any serious effort to curb greenhouse emissions, and that there is, in any case, no viable alternative to oil, gas or coal for decades to come.

Both assumptions were still credible six years ago when the Copenhagen climate summit ended in acrimony, poisoned by a North-South split over CO2 legacy guilt and the allegedly prohibitive costs of green virtue.

At that point the International Energy Agency (IEA) was still predicting that solar power would struggle to reach 20 gigawatts by now. Few could have foretold that it would in fact explode to 180 gigawatts - over three times Britain’s total power output - as costs plummeted, and that almost half of all new electricity installed in the US in 2013 and 2014 would come from solar.

Any suggestion that a quantum leap in the Technology of energy storage might soon conquer the curse of wind and solar intermittency was dismissed as wishful thinking, if not fantasy.

Six years later there can be no such excuses. As The Telegraph reported yesterday, 155 countries have submitted plans so far for the COP21 climate summit to be held by the United Nations in Paris this December. These already cover 88pc of global CO2 emissions and include the submissions of China and India.

Taken together, they commit the world to a reduction in fossil fuel demand by 30pc to 40pc over the next 20 years, and this is just the start of a revolutionary shift to net zero emissions by 2080 or thereabouts. “It is unstoppable. No amount of lobbying at this point is going to change the direction,” said Christiana Figueres, the UN’s top climate official.

Yet the energy industry is still banking on ever-rising demand for its products as if nothing has changed. BP is projecting a 43pc increase in fossil fuel use by 2035, Exxon expects 35pc by 2040, Shell 43pc and Opec is clinging valiantly to 55pc. These are pure fiction.

The Intergovernmental Panel on Climate Change (IPCC) may or may not be correct in arguing that we cannot safely burn more than 800bn tonnes of carbon (two-thirds has been used already) if we are to stop global temperatures rising two degrees above pre-industrial levels by 2100. I take no view on the science.

This article is controversial, although I certainly feel that it merits our attention.

Solar energy is developing even faster than most people envisaged, thanks to ‘needs must’ and the accelerating rate of technological innovation which this service frequently mentions. China has embraced solar energy because of its chronic pollution problems. Less developed India has moved more slowly in this respect but has the same problem. Additionally, even a small rise in global temperatures presents a huge risk for tropical India.

This item continues in the Subscriber’s Area, where a PDF of AE-P's column is also posted.

Action Replay: The Great Game, Ottomania and The Fatimids -

My thanks to Iain Little for his ever-interesting Fund Manager’s Diary. This issue is devoted to a startling item of research from Charles Gave of Gavekal. Here is a brief sample:

Russia and Turkey are at loggerheads as Moscow escalates military engagement in Syria. Turkey’s President Erdogan has threatened to find another gas supplier after Russian jets breached its air space, and Ankara has initiated legal action against Gazprom over the price charged for piped gas…..For the last 3 years, I have argued that Vladimir Putin’s strategic goal was to see the Sunni monarchies of the ME toppled, thereby crude oil prices at USD200 a barrel and a controlled market for Russia’s only real source of income.

Only a few years ago people feared that this was all but inevitable, in the mistaken belief that we were running out of crude oil. Today, thanks to Technology it sounds more like Mr Putin’s pipe dream. Nevertheless, the Middle East is the least stable region of the global. Given all its wealth and oil, shock waves from this deeply troubled region can be far reaching.

Email of the day on mass production of graphene

A very interesting article appeared in our local on-line newspaper here in Cambridge. It describes a breakthrough method for printing with graphene, at much lower cost and higher speed than current materials and methods.

This is the kind of breakthrough that will lead to the advances in real-time connected health monitoring that I will be discussing as part of my presentation at Markets Now on January 18.

Thank you for this illuminating article and here is an important section:

Developed by researchers at the Cambridge University in collaboration with city Technology company Novalia, the method allows graphene and other electrically conducting materials to be added to conventional water-based inks and printed using typical commercial equipment. It is the first time that wonder material graphene has been used for printing on a large-scale commercial printing press at high speed.

Greenlight Partner Letter

Thanks to a subscriber for this interesting report from Greenlight. Here is a section on SunEdison:

In the weeks before the GLBL initial public offering, SUNE was at its highs and we contemplated trimming the position. Since we expected the UOI would trigger a further advance in the shares, we decided against it. Around the same time, oil and gas prices renewed their declines, causing the values of energy master limited partnerships to justifiably fall. We believed that TERP and GLBL would not be impacted, as neither is subject to commodity risk. We were wrong. Because the SUNE yield vehicles were relatively new to investors, the market did not distinguish them from other energy dividend flow through structures. In mi-July, TERP began falling along with the rest of the sector taking SUNE with it. GLBL IPO’d at a big discount a week later and traded poorly in the aftermarket.

As GLBL and TERP continued to fall they effectively lost access to the capital markets, and SUNE collapsed as the market because worried that SUNE would be able to sell its projects and could even run out of money. Ironically, the market judged SUNE’s rapidly growing and massive backlog of attractive projects to be a liability.

SUNE’s hard-to-decipher financial statements fed the stock collapse. SUNE consolidates both TERP and GLBL on its GAAP statements. The complicating result is two-fold. First when SUNE sells a project to TERP or GLBL it bears the operating costs but doesn’t get to book the revenue from the sale. The result is the appearance of an operating loss. Second TERP and GLBL use non-recourse project finance debt to fund the purchases and the debt appears on SUNE’s balance sheet. The result is that SUNE appears to be heavily levered and losing money. From a GAAP perspective that’s true, but from an economic perspective it is not. Nonetheless, this hasn’t stopped some wise guys from dubbing it “SunEnron”.

SUNE responded to the deteriorating environment by raising additional equity, finding third parties to buy its products, and slowing it development pipeline. All of these actions have marginally lowered the company’s value, but have stabilized the situation. Taking into account the more conservative business plan, when we look through the complicated financials we believe that SUNE’s development business is poised to have economic earnings in 2016 of about $1.34 per share, assuming that TERP and GLBL do not regain access to the capital markets.

In the movable feast of renewable energy breakeven estimates it’s hard to argue that lower oil and particularly natural gas prices skew the calculation. Solar Technology is advancing at a prodigious rate but not so fast that companies can compete with energy prices which more than halved in a year. This has weighed on the sector in the short term but it is hard to argue with government mandates that utilities have to buy energy from renewable sources.

Cheap, Simple Technique Turns Seawater Into Drinking Water

Researchers from the University of Alexandria have developed a cheaper, simpler and potentially cleaner way to turn seawater into drinking water than conventional methods.

This could have a huge impact on rural areas of the Middle East and North Africa, where access to clean water is a pressing issue if social stability and economic development is to improve.

Right now, desalinating seawater is the only viable way to provide water to growing populations, and large desalination plants are now a fact of life in Egypt and other Middle Eastern countries.

Most of these plants rely on a multi-step process based on reverse osmosis, which requires expensive infrastructure and large amounts of electricity. These plants release large quantities of highly concentrated salt water and other pollutants back into the seas and oceans as part of the desalination process, creating problems for marine environments.

That’s why the race is on to find a cheaper, cleaner and more energy-efficient way of desalinating sea water.

In a paper published last month in the journal, Water Science & Technology, researchers Mona Naim, Mahmoud Elewa, Ahmed El-Shafei and Abeer Moneer announced that they have developed a new way to purify sea water using materials that can be manufactured easily and cheaply in most countries, and a method that does not rely on electricity.

The Technology uses a method of separating liquids and solids called pervaporation. Pervaporation is a simple, two-step process – the first step involves filtering the liquid through a ceramic or polymeric membrane, while the second step requires vaporizing and collecting the condensed water. Pervaporation is faster, cleaner and more energy efficient than conventional methods, not least because the heat required for the vaporization stage does not necessarily have to be electrically generated.

Pervaporation is not new – it has been in use for many years. But the membrane used in step one has been expensive and complicated to manufacture.

The breakthrough in this research is the invention of a new salt-attracting membrane embedded with cellulose acetate powder for use in step one of the pervaporation process. Cellulose acetate powder is a fiber derived from wood pulp and is, according to the researchers, cheap and easy to make in any laboratory.

According to the paper, the membrane can quickly desalinate highly concentrated seawater and purify even badly contaminated seawater. It can also be used to capture pollutants and salt crystals to minimize pollution of the environment. The membrane can be used in very remote situations using fire to vaporize the water.

The researchers have yet to prove the commercial viability of the product, but if they can, it could be a promising alternative for developing countries where water and electricity is a scarce resource.

I find it encouraging that pervaporation was developed at the University of Alexandria. Needs must remains a powerful motivation for development. Many regions of the globe would benefit from this Technology, which sounds as if it has real commercial potential.

It is at least a partial solution to California’s biggest problem of drought, having used up much of its groundwater. In addition to the Middle East and North Africa mentioned in the article above, both China and India should be very interested in pervaporation.

NSA, Apple Chiefs Decode Encryption Views

This discussion highlighted by the Wall Street Journal may be of interest to subscribers. In particular, the second comment by Nathan LaFrance is in my view a good representation of how many consumers feel about the issue. Here is a section:

Mr. Cook, appearing later, disagreed on the latter point. “I don’t know a way to protect people without encrypting,” he said. “You can’t have a backdoor that’s only for the good guys.”

Apple and federal officials have been at odds for more than a year, since Apple issued a new version of its mobile-operating system that it said safeguards user information, even from law enforcement. But the White House signaled recently that it won’t seek new laws to force tech companies to make products that allow law enforcement to eavesdrop.

The USA is finally introducing chip and PIN Technology and not before time. My credit card details have been compromised at least four times in the last two years. I’ve now got identity protection from ULCA Health, Anthem, Target, Home Depot but the letter I received yesterday was the one I was most surprised about. Experian, the firm other companies use to check the credit of a customer has been hacked with the loss of untold quantities of client data. In many respects I hope its Chinese government backed hackers since they have little interest in me specifically but after so many incidents one simply has to assume that our most personal data is out there in the public domain.

This article from Kurzweil AI may be of interest to subscribers. Here is a section:

While this initial result is essentially a proof of concept rather than a practical system, it points the way toward an approach that could lead to inexpensive and efficient solar cells or light-driven catalysis, the team says. So far, the engineered viruses collect and transport energy from incoming light, but do not yet harness it to produce power (as in solar cells) or molecules (as in photosynthesis). But this could be done by adding a reaction center, where such processing takes place, to the end of the virus where the excitons end up.

“This is exciting and high-quality research,” says Alán Aspuru-Guzik, a professor of chemistry and chemical biology at Harvard University who was not involved in this work. The research, he says, “combines the work of a leader in theory (Lloyd) and a leader in experiment (Belcher) in a truly multidisciplinary and exciting combination that spans biology to physics to potentially, future Technology.”

“Access to controllable excitonic systems is a goal shared by many researchers in the field,” Aspuru-Guzik adds. “This work provides fundamental understanding that can allow for the development of devices with an increased control of exciton flow.”

The research was supported by the Italian energy company Eni through the MIT Energy Initiative. The team included researchers at the University of Florence, the University of Perugia, and Eni.

Proof of concept is a big step and this is an enormously exciting field not least because of the enormous potential for artificial photosynthesis. However it could be a decade before we see commercial applications of this Technology.

The Little Gear That Could Reshape the Jet Engine

Pratt & Whitney’s new PurePower Geared Turbofan aircraft engines are impressive beasts. Scheduled to enter commercial service before the end of the year, they burn 16 percent less fuel than today’s best jet engines, Pratt says. They pollute less. They have fewer parts, which increases reliability. And they create up to 75 percent less noise on the ground, enabling carriers to pay lower noise fees and travel over some residential areas that are no-fly zones for regular planes. Airbus, Bombardier, Embraer, Irkut, and Mitsubishi have certified the engines for use on their narrowbody craft. JetBlue, Lufthansa, Air New Zealand, Malaysia’s Flymojo, and Japan Airlines are among the engine’s 70 buyers in more than 30 countries.

To people outside the aircraft business, what may be most remarkable about the engines is that they took almost 30 years to develop. That’s about 15 times as long as the gestation period of an elephant and unimaginably longer than it takes to pop out a smartphone app. Could Pratt have gotten the hardware out faster? Probably. But industrial innovation on the scale of a commercial jet engine is inevitably and invariably a slog—one part inspiration to 99 parts perspiration.

In Pratt’s case, it required the cooperation of hundreds of engineers across the company, a $10 billion investment commitment from management, and, above all, the buy-in of aircraft makers and airlines, which had to be convinced that the engine would be both safe and durable. “It’s the antithesis of a Silicon Valley innovation,” says Alan Epstein, a retired MIT professor who is the company’s vice president for Technology and the environment. “The Silicon Valley guys seem to have the attention span of 3-year-olds.”

This is a fascinating story, which refutes the critical view that corporations are only focussed on short-term returns, or dependent on government financing and university research to achieve significant breakthroughs. Those factors all help, of course, but corporations are also highly inventive on their own, from start-ups to Pratt & Whitney or Apple. We remain a highly inventive species.

Cyberspace Becomes Second Front in Russia Clash With NATO

Russian computer attacks have become more brazen and more destructive as the country grows increasingly at odds with the U.S. and European nations over military goals first in Ukraine and now Syria.

Along with reported computer breaches of a French TV network and the White House, a number of attacks now being attributed to Russian hackers and some not previously disclosed have riveted intelligence officials as relations with Russia have deteriorated. These targets include the Polish stock market, the U.S. House of Representatives, a German steel plant that suffered severe damage and The New York Times.

U.S. officials worry that any attempt by the Russian government to use vulnerabilities in critical infrastructure like global stock exchanges, power grids and airports as pressure points against the West could lead to a broader conflict, according to two people familiar with the debate inside government and who asked to not to be named when discussing intelligence matters. When NATO officials met last week, they voiced alarm about Russia’s rapid involvement in Syria, including the firing of cruise missiles, and vowed the biggest reinforcement of their collective defense since the end of the Cold War.

The Ungoverned World

The global economy is achieving so much, not least in the social sciences and bioTechnology. Billions of people have been lifted out of poverty in the last few decades. Nevertheless, parts of our world remain primitive and often in turmoil, with little education, subjugation of women, and no enlightened rule of law. Governance is everything.

Iain Little: Fund Manager Diary

Mr Jeremy Corbyn, a Marxist time traveller from the 1970s trade union movement, has been elected head of the UK Labour Party. The UK, the world's 5th largest economy, now has as the head of its principal opposition party a man who has so far refused to kiss the Queen's hand in the time honoured tradition of members of Her Majesty's Privy Council. He has preferred instead to absent himself to Scotland, no doubt to kiss the less fragrant hands of his Comrades on Clydeside, where, in the 1860s, a third of the world's shipping was bolted together (sadly, no more). Mr Corbyn's influence on voting patterns should ensure that a Conservative led UK will prosper on a diet of European financial services primacy, Technology, pharmaceuticals and economic liberalism. This can only be good news for its stock market in the longer term.

Cyberwar Ignites a New Arms Race

This article by Damian Paletta, Danny Yadron and Jennifer Valentino-Devries for the Wall Street Journal may be of interest to subscribers. Here is a section:

“Cybercapability, especially offensive cybercapability, is a relatively inexpensive method that a country can exploit to ‘hit above its weight class,’ which North Korea is fully aware of and is attempting to leverage,” said Steve Sin, a former U.S. Army counterintelligence officer who now researches unconventional weapons and Technology.

Defense contractor Northrop Grumman Corp., meanwhile, has advertised for a “cyber operations planner” to “facilitate” offensive computer attacks with the South Korean and U.S. governments, according to a job posting it listed online.

Cybersecurity is a multi-faceted theme where the majority of consumers and corporations focus on defensive capabilities. Governments on the other hand are much more interested in offensive cyber characteristics. Considering this an M1A2 Abrams tank cost about $6 million in 1999 and a Reaper drone costs about $12 million in hardware alone. So for the cost of one piece of high end military apparatus one could purchase a serious technological suite of tools and pay the programmers required to bring a project online. Against this background the relatively low barrier to entry means this represents a substantial growth trajectory.

3D-printed Adidas running shoe should fit like a glove

This article by Stu Robarts for GizMag may be of interest to subscribers. Here is a section:

The Futurecraft 3D midsole was developed in partnership with 3D printing specialist Materialise. It is designed to provide the cushioning needs of the wearer, matching contours and pressure points of each individual foot. Adidas describes it as a "flexible, fully breathable carbon-copy of the athlete’s own footprint."

Gizmag has requested some additional info from Adidas on the specific materials and processes used to create the Futurecraft 3D, but has yet to receive a response. The sportswear manufacturer does say in a press release, however, that its ultimate aim for the Technology is for customers to be able to walk into a store, spend a short time running on a treadmill, then leave the store with a 3D-printed running shoe.

There is nothing quite like finding a pair of shoes that fits just right. Nike was talking about scanning people’s feet in store and mailing them their shoes a few years ago but nothing has happened on that front just yet. Adidas’s solution would appear more workable because the consumer would be able to walk out of the store holding or wearing the product. It’s still in the future but it does help to exemplify the trend of customisation that physical locations need in order to encourage shoppers to leave their homes.

Email of the day 2

On bioTechnology and market timing:

Dear David

My name was mentioned in the email of the day yesterday on bioTechnology so I thought it would be timely to add some thoughts.

On the question does one buy and hold bioTechnology shares or funds, some interesting data was published earlier this year by Steve Sjuggerud, who is a very experienced and successful investor living in Florida. He back-tests market data extensively. His back-testing showed that from 1983 until his publication in early 2015 you would have made 21.5% a year on average following buy and hold in a bioTechnology index. I think that beats Warren Buffett. But is a very tough ride as there are large booms and busts. So he then went on to say that a simple trend-following strategy can help avoid the large busts and can improve returns significantly. He suggested using monthly data and buying biotech stocks when they close above their 6-month moving average, and selling when they close below their 6-month moving average. His back-testing indicated this strategy would have delivered a compound annual gain of 30.8% since 1983. One has to stomach many whipsaws, as with any trend-following strategy.

Personally, I add another nuance. This is a rule I follow in my own investing, and it featured in my Markets Now presentation in London on 15 June 2015. The slides are available on Fuller Treacy Money website. Look at slide 6 for the rules, and slide 7 for the data on which they are based. This concerns the market overall, not bioTechnology specifically. If the yield curve remains positive (as it is today) there is a strong probability that the overall bull market remains intact. Nevertheless, this has worked only about 70% of the time historically over the past 100 years. The other 30% of times when markets fell substantially have generally been during the market ‘weak season’ May-October which David mentions regularly. As a safeguard I go 50% cash during this time. I went 55% cash during May-June this year and sold about 90% of my bioTechnology holdings.

In addition to the market weak season, another factor that made me lighten my bioTechnology positions is that they had become significantly over-extended relative to the 200 day moving average. Mean reversion is highly likely when price gets 30-40% above the 200 day moving average. David and Eoin refer to this very often.

My own investing in quoted bioTechnology is guided by the three factors described here. I gave a lot more detail on bioTechnology in another presentation titled ‘The Third Industrial Revolution’, at Markets Now on 23 February 2015. Again, the slides are available on the website.

I hope this is helpful.

Best wishes David, and I hope to see you sometime in December or January, after my travels are finished at end November (I will be helping at the orphanage I support in South Tibet).

My thanks to David Brown for this wonderfully educative email which he posted on the FTM site today. I reproduce it here to ensure that subscribers see it.

The advantage of an interactive website is that we can learn from each other, not least as the level of knowledge and experience within the Collective of Subscribers is enormous. Thank you for sharing your thoughts.

Email of the day

On the First Trust NYSE Arca BioTechnology Index Fund (FTB):

Hi David

How very prescient you were about biotechs! On the 13th March [Email of the day 4] you wrote about looking out for an upside tail on the weekly chart, and said "You could ride out the next mean reversion as a long-term investor but do not be surprised if it comes back to 100."

And what happened? The very next week there was an upside tail. That top was subsequently taken out, but now we ARE below 100! Which indeed is much lower than I expected at the time.

I took the first course, riding out the mean reversion (and more) and am now holding on. Trusting that your long-term assessment - "I do not doubt for a second that bioTechnology has a terrific long-term future" - is as correct as your short-term one was! In my decision to do this I was definitely influenced by the knowledge that that is what you habitually do with your long-term positions, even in critical situations like 2008, and that it has paid off for you in the long term. And that in my own trading I have always - through decades - made money on shares and lost on the trading. So now I have only long-term positions, finally having seen the light.

Once again thanks to you and Eoin for being such marvellous guides to this choppy universe.

Thank you for your kind words and for raising, once again, such an interesting topic. You are playing to your strengths, which makes sense for every investor.

Leveraged trading is exhilarating when successful but also traumatic when it goes wrong, as it inevitably does from time to time. It is also much more difficult than unleveraged investing, because 10 to 1 gearing clearly involves short-term money control challenges. Therefore sensible people either keep leveraged trades very small relative to their capital, or build-up positions on a Baby Steps basis, protected with in-the-money trailing stops. However, this latter tactic needs the luck of significant and orderly trends to be profitable. They are often the exception rather than the rule, so disciplined traders will often find that they are frequently stopped out with small profits or losses, even if they have anticipated the overall direction of the trend.

As for riding out your unleveraged FTB position, it is near $100 today but it briefly fell much lower on the August 24th temporary meltdown, probably due to high-frequency trading, although I have no confirmation of this having been on holiday at the time. I hope you were similarly distracted from the markets on that day, because it would have been traumatic for many people. For this reason I am repeating the tactical paragraph from my reply to your email posted on 13th March, for dealing with positions where the trend has accelerated in your favour:

Musings From the Oil Patch October 6th 2015

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section:

The new Imperial Oil Technology involves adding a solvent to improve the flow of oil to the surface as well as generators that burn less natural gas to supply the steam. What we understand about Imperial Oil’s new Technology is that currently proposed oil sands projects could produce 55,000 to 75,000 barrels a day in oil output compared to their presently planned output of 30,000-40,000 barrels a day according to Mr. Krüger. As he was quoted during the presentation,

“This is bigger on a per phase basis than we’ve talked about in the past.” From Mr. Krüger’s viewpoint, this Technology represents “a very large, long-term growth opportunity.” Even though the company seems satisfied with the new Technology, it is not ready to move forward with some of these planned oil sands projects while management assesses their cost, possible changes to Alberta’s regulatory policies and the outlook for global oil prices.

Citi Research has prepared a chart showing its assessment of the impact of technological and economic cost reductions of various oil outputs between 2014 and 2015, based on assumed 2020 output contribution, due to the industry downturn. Most of the decline since 2014 is about $5 per barrel, although Gulf of Mexico costs may have declined by $7 a barrel and the shale formations by $10 a barrel. If Mr. Krüger’s assessment of the impact on output from Imperial Oil’s new Technology is correct, then there would likely be a significant reduction in the cost of new oil sands output. According to the Citi Research chart, they estimate that oil sands currently cost between $80 and $100 a barrel. However, if the Imperial Oil claims are correct and can be implemented commercially, then a 30% output improvement might translate into $25-$30 per barrel cost reductions.

Obviously there are a number of assumptions that must be made in reaching this conclusion, including that the solvent-added SAGD process is not more costly than what is being done now and that additional output volumes require extensively larger facilities in order to handle them.
If you are Saudi Arabia and you have targeted new, large and long-term output sources such as oil sands and deep water oil in your price war, the prospect of their costs declining materially has to be unnerving. It has been our contention that Saudi Arabia’s target was these deposits, including Arctic output, and less about the domestic shale business. Why? The shale revolution is a “real-time” output, meaning that if producers are forced by economics to stop drilling, eventually oil prices will rise, drilling will resume, as will shale output, and the price cycle will start all over again.

Technological innovation continues apace and lower energy prices only increase the incentive to develop solutions in order to ensure survival. North America represents an exciting energy geography and the relatively low price of oil does not change that. On the other hand the continued development of new extraction methods may keep a lid on prices but will increase volumes.

Email of the day 1

I really enjoyed Markets Now on Monday. I think that you were indicating that monetary policy will keep some semblance of equilibrium in markets but I will feel better if we see more evidence of markets settling. I don’t think I handle it all as well as I used to! I had to sit down at the American Bar.

The following chart did cheer me up though. I was reviewing a client portfolio ( smaller cos investment trusts as it happens) & was struck by just how much the long term chart below reminded me of what I read years ago by Edwards & Magee or Murphy or whatever – on the ‘formation’ of a ‘classical bull market’.

Turning to the next page in those books I think they would have then said that a retracement of 30-50 % is quite possible but thereafter at least 2 more bullish upswings. What do you think? Unfortunately because of the way regulation works (or doesn’t??), I cannot really indicate this to a UK ‘regulated’ client.

On a completely separate matter, I hope you do not mind me asking this?

You may have seen that the business man John Caudwell & his family have been struck down by this terrible Lyme disease. I have a client (in fact I did bring him to Markets Now about a year ago) who has a grandson suffering very badly from this. I think that the family are desperate for any ‘cure’ & my client who is a scientist himself is trying to obtain as much information & ideas for treatment as possible. Lots of brickwalls, I gather.

I was wondering if David Brown might have any suggestions or contacts on this – or any ideas as to what he might do? David might find this client interesting in any event as he is a leading patent attorney & with some fascinating stories on Technology.

Thank you for your detailed email and your considerable interest in our Markets Now seminars.

Market setbacks are often volatile, which can certainly make them more stressful, even if one has seen them coming. The pressures encountered are inevitably increased if you have clients who are seeking guidance from you and you care for them, as you obviously do.

The World Economy as we know it is About to Be Turned on Its Head

Workers of the world are about to get their revenge. Owners of capital will have to make do with a shrinking slice of the cake.

The powerful social forces that have flooded the global economy with abundant labour for the past four decades years are reversing suddenly, spelling the end of the deflationary super-cycle and the era of zero interest rates.

"We are at a sharp inflexion point," says Charles Goodhart, a professor at the London School of Economics and a former top official at the Bank of England.

As cheap labour dries up and savings fall, real interest rates will climb from sub-zero levels back to their historic norm of 2.75pc to 3pc, or even higher.

The implications are ominous for long-term US Treasuries, Gilts or Bunds. The whole structure of the global bond market is a based on false anthropology.

Most subscribers know my views on this topic so will just briefly say that wages in developed countries were held down by three factors: the 2008 economic crisis and its impact which still lingers today, globalisation, and Technology.

I think the global economy will be recovering over the next three years. Globalisation has levelled the wages playing field somewhat, and Technology has made middleclass workers more efficient, not least in developed countries. However, I also think that Technology will continue to replace jobs in many industries, although we will also see the creation of new jobs.

A PDF of Ambrose Evans-Pritchard's article is in the Subscriber's Area.

Turn CO2 Into Cold, Hard Cash

The world's biggest companies cite many reasons for cutting their climate pollution: It's good PR, it's even the law in many places, and not doing so contributes to the risk of global catastrophe. Here's one you don't hear so much. By blowing their carbon dioxide skyward, power plants are venting raw material and, by extension, a ridiculous amount of money. Waste is being wasted. All that carbon and oxygen must be good for something.

That's the premise of the XPrize Foundation's new Carbon Prize, a $20 million competition over five years to identify "high-value products" that can be made from captured power-plant CO2 emissions. The competition formally opened Tuesday with a six-month period for teams to register their projects that might involve biofuels, fabrics, pharmaceuticals, and building materials. Within prescribed limits, it doesn't matter what's made, as long as the CO2 is captured and turned into something people or businesses want to buy.

Competitors must make it through three judging rounds. The two main prizes of $7.5 million each will go to the teams that make the most of CO2 from coal and gas plants. A U.S. coal plant and Canadian gas plant will be named as the XPrize's test sites soon. The prize is sponsored by NRG Energy and Canada's Oil Sands Industry Alliance.

The guidelines rule out technologies that miss the spirit of low-carbon innovation. Trees, for example, have proven adept at catching carbon, but their core Technology—photosynthesis—isn't new. "Enhanced oil recovery" is energy-industry jargon for pumping CO2 into a well to drive up more oil. That's a marketable use of the gas, but in the service of burning more carbon.

The Carbon Prize may be the most physically challenging competition yet. Not because it necessarily requires great exertion, but because of the actual physical chemistry of CO2 itself. Carbon dioxide is a very low-energy molecule. It's spent fuel—the molecular equivalent of passing out from exhaustion after a long run. So to make CO2 into anything useful, you need to use lots of energy. But producing energy typically emits CO2, which the XPrize wants people to make into useful products, which requires energy, which produces CO2 ….

This competition is sponsored by the USA’s NRG Energy and Canada’s Oil Sands Industry Alliance. They deserve any favourable publicity from this effort, and who knows, perhaps it will spark a sensible commercial idea which lowers CO2 emissions. It is not a new idea – see Herbert Hoover’s sensible comments nearly a hundred years ago, quoted in the concluding paragraph of Bloomberg’s article.

Email of the day 1

On “worried”:

I'm writing you as a friend of the firm, and a worried one at that. I think it would be best not to publish this letter, but I will leave that completely up to you.

As you know, I have been a subscriber for some years, attended 3 full chart seminars plus 1 1-day seminar, and read Crowd Money 4 times along with providing some help on it. I've been doing TA since the mid-90's. I pay a LOT of attention to what you and Eoin write and say. Until now, I have always been pretty much in sync with your thinking, or was influenced by your thinking to get in sync.

Over the long term, I agree we will see a secular bull market propelled by Technology of all kinds.

But now, my read of the markets, using the methodology you and Eoin have so beautifully crafted, tells me that we have entered into a globally synchronized bear market. I look at over 100 charts every day. Very few cry out to be bought, very few show basing patterns, but most show tops that are already confirmed. And many are deep into declines that still show no sign of basing.

Your advice to buy during this time feels really really scary to me. I'm not scared for my portfolio - I'm net short by a lot. But I am scared for your firm and your reputation. If this is the beginning of a fairly serious cyclical bear market, it would seem to me that you face the risk of a major loss of subscribers if you encourage them to buy now. I am not speaking for myself, in this regard, as I plan to stay a subscriber forever. But others may not be so clear thinking. If buying now turns out to be a bad call, you will be perceived as having missed a critical top in the markets, and having not rigorously used the now famous Behavioral Technical Analysis to evaluate the price patterns.

Thank you for this detailed and thoughtful email. I genuinely appreciate your interest in this service and am touched by your concern.

The short answer on market analysis is that we all have more to learn.

In response to your main paragraph just above, I have always tried not to give advice. Instead, I offer my views and tell people what I am doing with my own investments. This is an important distinction. Few of our experienced subscribers wish to be told what to do. They want to hear clear, unhedged and objective views, which help them to clarify their own thoughts. Similarly, I spend a considerable amount of time reading and listening to different perspectives to help me clarify my own thoughts. Most of our less experienced clients also wish to develop that same independence of thought, which can help them to think clearly during the crowd manias.

For this reason I have always wanted to be in charge of my own thinking process. I know it will not always be right – nothing ever could be in attempting to anticipate the future. However, if you can observe markets objectively, trying to understand the psychology of fear and greed, in addition to the main fundamental economic factors, you have a good chance of being right more often than wrong, especially on the big calls.

Fortunately, ever since late 1969 when I left a big firm, I have had the freedom to develop independent analytical thought which is exceptionally important to me. In other words, people may agree or disagree but no one sensors my research output. Additionally, I am not worrying about my reputation before providing a market view; otherwise I would wind up hedging everything and subscribers would hear fewer clear thoughts and opinions.

Biotech Selloff Sinks U.S. Stocks; Dollar Gains, Treasuries Fall

A selloff in bioTechnology shares halted a rally in U.S. equities, while the dollar rose and Treasuries fell after Federal Reserve Chair Janet Yellen reassured investors the turmoil in emerging markets won’t kill off U.S. economic growth.

The Nasdaq BioTechnology Index tumbled more than 5 percent, sending the gauge of drugmakers into a bear market. Nike Inc. surged to a record, bolstering the Dow Jones Industrial Average. An index of global equities rose for the first time since the Fed policy meeting last week. The dollar strengthened toward its best week in two months, Treasuries led bonds lower and gold slumped.

Yellen managed to calm markets that had been shaken up after the Fed left rates unchanged last week amid concern that economic and financial turmoil could slow growth. A tweet from Democratic presidential hopeful Hillary Clinton suggesting there may be “price gouging” in the market for prescription pills sparked the selloff in drugmaker shares this week.

“We saw a rally come in and now the rally is getting questioned,” said John Stoltzfus, the New York-based chief market strategist at Oppenheimer & Co. “ It’s going to be all about earnings. The biggest thing here is: people are impatient. They want their answers now.”

Data in the U.S. today showed the world’s largest economy expanded more than previously forecast in the second quarter, boosted by gains in consumer spending and construction. A report on consumer sentiment indicated some households are starting to look beyond the recent turmoil in financial markets.

Email of the day on Tesla

My hunch - but I may be wrong - is that electric cars are relatively easy to build... there is not much Technology in an electric engine, no complexity; as for the batteries (which I understand are Panasonic's in the case of Tesla, which assembles them together in very large modules) I understand that the know how is not really in the hands of Tesla or any other producer (even Renault/Nissan stopped developing in house Technology) and therefore someone else did the clever job.

As a first mover Tesla has very competently built a good product, taking risk only where strictly necessary: luxury brand (low risk) with traditional, long bonnet, probably off the shelf design (low risk), an old chassis for the roadster, well tested batteries. Also, the complexity of electric power train - compared even with a small 1ltr engine - is little: there are fewer (almost none in fact) moving parts, no gear box. No way a new producer could enter the industry with its own internal combustion engines, but the electric car gives this opportunity. A good demonstration of this is that Tesla's provisions for warranties are in line with those of a mature manufacturer with a well-tested line up of cars... probably Tesla know that there is so little in an electric car that can actually go wrong.

Traditional producers have held off from making a proper move into the sector not to cannibalize their current products and make all R&D and Capex in a probably obsolete Technology completely worthless. After all they can catch up quickly: the difference between a Tesla, and a BMW or Nissan Leaf or 500e is purely the size of the battery, whose development risk is not theirs... On paper, a Leaf may have the range of a Tesla simply by doubling the size of the battery. In the meanwhile, no necessity of taking the risk of killing their current baroque business model, made of V12, V6, boxer, in line 4 or 3 or 2 cylinder hyper complex engines that you have to service all the time and last 300k when of exceptional quality.

Traditional car manufacturers will "tolerate" Tesla as far as it does not build a too strong brand (ludicrous speed is genius by the way: intrinsic of electric engine, easy to do, but presented as cool high tech stuff), then move in and with their economies of scale and less vertically integrated structure quickly catch up... it will be dear, but unavoidable as Tesla made clear it is possible to achieve a usable and fun product with no petrol engine.? VW making its move,? but I guess everyone if working on something.

What I think could get ugly in this story - from the point of view of Tesla shareholders - is the excessive use of dodgy accounting (there are examples), the glorification of the CEO and its ideas (never good in a plc), just to get hold of capital for a venture that is extraordinarily risky and liable to competitive pressures from corporations much larger and much more sophisticated. How far will the individual Musk go to keep the business going? He is very successful, people love him, Tesla S has been voted best car ever. Difficult to give that up, right?

Did not look at the other businesses of his, with Space X he is against defence and/or state run companies... difficult.

Thank you for this detailed email and I agree that with valuations as they currently stand Tesla does not have a great deal of margin for error. The company has lost money in every quarter since 2013 but less than analysts estimated which has helped support the massive run-up in prices.

China Stocks Jump in Last Hour of Trading on State Support Signs

Guo Feng, an investment adviser at Northeast Securities Co., said stocks also rallied on speculation the government is succeeding in reducing risks associated with non-brokerage margin lending. The China Securities Regulatory Commission cleared 3,255 non-brokerage margin funding accounts, or 61 percent of the total, spokesman Deng Ge said this week.

Margin traders cut holdings of shares purchased with borrowed money on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling to a nine-month low of 587.1 billion yuan ($92.2 billion).

The Technology sub-index in the CSI 300, which has slumped 54 percent since its June peak, posted its biggest gain since September 2008. Yonyou Network Technology Co. rose by the 10 percent daily limit, rebounding from its lowest close since Jan. 5.Dr. Peng Telecom & Media Group Co. jumped 10 percent. Measures of health-care and industrial shares advanced at least 6.7 percent.

Well, China certainly has both a command economy and stock market, in case anyone was in doubt. The trouble with this micromanagement is that it is an on-the-job learning process. Moreover, China’s proclivity for a casino environment creates global shock waves.

Yes, China’s economy has slowed, probably to a GDP growth rate closer to 4% than the reported 7%. Nevertheless, China certainly has the world’s second largest economy, and by some measures, including imports, it is the largest economy.

For the world’s investors, whether domestically oriented or internationalists, China is the big elephant in the room. Moreover, it is still growing, seldom a passive presence and often unpredictable. We may or may not want to invest in China, but we certainly need to keep an eye on it, starting with price charts for China’s indices.

Kuka AG: Ride the wave of Industry 4.0

Thanks to a subscriber for this educative report from SocGen focusing on the industrial automation sector. Here are some sections:

The fusion of the digital world with the real world of manufacturing, known as the fourth industrial revolution, has just begun. For decades, Kuka has been setting milestones in factory and production automation, but we think the real breakthrough is just ahead with smart factories, for which Kuka is providing key Technology that enables Industry 4.0. In our view, intelligent robotics, in particular human/robots collaboration is the heart of the digitised value creation chain as robots can be used as a versatile tool for unlimited production flexibility.

With its sensitive lightweight robots, mobile platforms, and smart platforms such as controllers and software, we think Kuka is well positioned to offer human/robot collaborative assistance systems, automation solutions, and production processes that mark the dawn of a new area for smart factories.

And

Although industrial robots have been used for decades, their high cost only led to productivity improvements in industries that were using low skilled, but highly paid workers in the developed world, performing jobs that were dangerous, dirty and dull, like welding in auto production. In our view, we are now at a stage where robotics and the automation industry have started to “cross the chasm”, as early adopters such as the car industry have paved the way for a broader use of robots. Therefore, we think that other industries will catch up with the automotive industry to improve their efficiency and remain competitive, especially in regions of high wage inflation and an ageing workforce.

As the above report highlights the automotive sector is where the robotics sector took root. However the potential for robots to be employed in additional high margin sectors such as healthcare, pharmaceuticals and logistics is where the major growth thesis lies. Demands for high quality manufacturing, wage growth and an aging workforce all represent encouraging themes for the sector.

In Japan, the Rise of the Machines Solves Labor and Productivity Here is the opening:

The rise of the machines in the workplace has U.S. and European experts predicting massive unemployment and tumbling wages.

Not in Japan, where robots are welcomed by Prime Minister Shinzo Abe’s government as an elegant way to handle the country’s aging populace, shrinking workforce and public aversion to immigration.

Japan is already a robotics powerhouse. Abe wants more and has called for a “robotics revolution.” His government launched a five-year push to deepen the use of intelligent machines in manufacturing, supply chains, construction and health care, while expanding the robotics markets from 660 billion yen ($5.5 billion) to 2.4 trillion yen by 2020.

“The labor shortage is such an acute issue that companies have no choice but to boost efficiency,” says Hajime Shoji, the head of the Asia-Pacific Technology practice at Boston Consulting Group Inc. “Growth potential is huge.” By 2025, robots could shave 25 percent off of factory labor costs in Japan, according to the consulting firm.

Worker Replacement

Automation also has huge potential for distribution. Toho Holdings Co.’s 10 billion yen distribution center, which became fully operational in January, employs about 130 workers, roughly half the number at another one of similar size. Productivity per worker is 77 percent higher with robots handling 65 percent of item-picking, the drug wholesaler says.

“We wanted to lower manpower requirements by using robots because we already found it hard to recruit people, including part-time workers,” says Mitsuo Morikubo, the company’s executive managing director.

Inside a three-story gray building in Saitama north of Tokyo, about 28,000 items such as vaccines, liquid food and suppositories are stored. On the spotless second floor, a handful of people open cardboard boxes and take out items for the machines to handle.

The dexterity of the 16 robots is in evidence when one of them lowers its arm, stopping just above a rectangular box. Eight suction pads stretch down, latch on and drop it on one of the three narrow conveyor belts. “Swish, swish, swish,” its sound blends in with the clacking belts.

Depending on the type, size and weight of an item, the machine alters which pads it uses, how fast it moves and where it puts the item. The robots can pick up to about 10,000 items per hour with almost perfect accuracy. By adjusting the timing of the conveyor belts, the whole system can mix different products and make orders for individual customers.

Japan was Asia’s first developed economy of the last century. However, in the 1980s it created what was arguably the world’s biggest ever bubble, which burst in 1990 and undermined GDP growth for over a generation.

Tencents WeChat App to Offer Personal Loans in Minutes

This article by Juro Osawa may be of interest to subscribers. Here is a section:

Using the new Weilidai feature, WeChat users can receive money in just a few minutes after submitting their applications. They apply for loans by giving their traditional bank account information and other basic personal data, and Weilidai assesses their credit based on its own data as well as individual loan status information from the People’s Bank of China, according to people familiar with the matter. The credit assessment process could take less than a minute. While interest rates vary based on the user’s credit levels, on average, the daily rate is 0.05%. The terms for the loans are up to 20 months.

In late July, WeBank said its outstanding personal micro loans amounted to 800 million yuan, without disclosing the number of borrowers.

Still, how far Tencent and WeBank can expand will depend in part on Chinese authorities. WeBank uses facial recognition Technology to verify users’ identities before allowing them to bundle their traditional bank accounts with WeBank’s online accounts. Because regulators are still concerned about the Technology, there are limitations to what users can do with the online accounts, a person familiar with the matter said. For example, users cannot transfer money from their online WeBank accounts to other people’s bank accounts.

“Internet finance is still at its early stage, and the regulatory framework is still evolving,” Ms. Meng said.

Both Google and Facebook have been investigating entering the banking sector. For Apple the logical next step from ApplePay would be to offer credit products not least because it would be a useful employment of the company’s substantial cash reserve. Well-heeled Chinese companies are further along in developing their own products.

Yingli Fights to Survive as Another Solar King Dethroned

This article by Alex Nussbaum for Bloomberg may be of interest to subscribers. Here is a section:

One of those investments was the 2009 purchase of Cyber Power Group Ltd. for $77.6 million, a company that makes polysilicon, the main raw material in solar cells. Yingli’s founder and Chief Executive Officer Miao Liansheng invested another $270 million to upgrade the plant. The project made more sense then, when the material sold for $400 a kilogram; today, it can be bought for less than $20, said Angelo Zino, an S&P Capital IQ analyst in New York.

Yingli spent aggressively on marketing as well, including sponsoring the World Cup. Its logo was prominent during matches in Brazil last year. “They spent on capacity, they spent quite a bit on marketing,” Sanganeria said. “They took everything to the extreme.”

Suntech and Q-Cells faced similar issues, borrowing to expand capacity and then finding themselves constrained by debt, said Raymond James’ Molchanov. Both struggled to cut manufacturing costs fast enough to keep up with the market. The challenge was exacerbated starting in 2011 when slowing demand in Europe led to a global oversupply of panels and falling prices.

The problem for solar cell manufacturers is that the primary bullish case for solar is that Moore’s law can now be applied because it is a Technology rather than an extractive resource. This means companies relying on producing legacy products, when Technology is advancing rapidly are being left behind and often with high debt loads.

This Preschool Is for Robots

This article by Jack Clark for Bloomberg may be of interest to subscribers. Here is a section:

What makes Brett’s brain tick is a combination of two technologies that have each become fundamental to the AI field: deep learning and reinforcement learning. Deep learning helps the robot perceive the world and its mechanical limbs using a Technology called a neural network. Reinforcement learning trains the robot to improve its approach to tasks through repeated attempts. Both techniques have been used for many years; the former powers Google and other companies’ image and speech recognition systems, and the latter is used in many factory robots. While combinations of the two have been tried in software before, the two areas have never been fused so tightly into a single robot, according to AI researchers familiar with the Berkeley project. “That’s been the holy grail of robotics,” says Carlos Guestrin, the chief executive officer at AI startup Dato and a professor of machine learning at the University of Washington.

After years of AI and robotics research, Berkeley aims to devise a system with the intelligence and flexibility of Rosie from The Jetsons. The project entered a new phase in the fall of 2014 when the team introduced a unique combination of two modern AI systems&and a roomful of toys—to a robot. Since then, the team has published a series of papers that outline a software approach to let any robot learn new tasks faster than traditional industrial machines while being able to develop the sorts of broad knowhow for solving problems that we associate with people. These kinds of breakthroughs mean we’re on the cusp of an explosion in robotics and artificial intelligence, as machines become able to do anything people can do, including thinking, according to Gill Pratt, program director for robotics research at the U.S. Defense Advanced Research Projects Agency.

And

Part of why the robotics industry is so interested in the type of AI in development at the Berkeley lab is because, unlike with most emerging Technology, it already works really well, says Abbeel. “Everybody who tries something seems to get things to work beyond what they expected,” he says. “Usually it’s the other way around.” The work has piqued the interest of executives at Dyson, Fujitsu, Siemens, Toyota, and several startups, who have visited the lab, Abbeel says.

Technological innovation is proceeding at such a rapid rate that people depending on low skilled work are being replaced. This is particularly true of factory settings that do not require movement over potentially rough terrain. Education, upskilling, individual creativity and product customisation are more important than ever if individuals are to thrive in an environment where industrial automation is proving to be a powerful competitor.

Blythe Masters Tells Banks the Blockchain Changes Everything

This article by Edward Robinson and Matthew Leising for Bloomberg may be of interest to subscribers. Here is a section:

She then plumbed why the ledger could transmit assets without an intermediary, which would change everything she knew about the way the markets completed trades. Buyers and sellers, of course, can’t automatically trust one another. In the fixed-income market, for example, we need middlemen to draw up contracts between buyers and sellers that cover interest payments, terms, and collateral, plus clearinghouses to guarantee the exchange of cash for securities.

Through her research, Masters understood how you could input all that information into a digital “smart contract” on a distributed ledger. Conceptually, it’s similar to the way you can embed video in an e-mail. But the difference is that when you send that smart contract along, it doesn’t just contain data, it transfers ownership of the security. The value belongs to whoever possesses it. So a trade could be settled in minutes instead of days or weeks, Hirani says.

Anyone with access to the ledger can read the contract with a click of a mouse. That means regulators, who depend primarily on self-regulatory organizations to police the markets, could easily verify that a securities transaction didn’t violate anti-money-laundering rules or other laws. The blockchain, in essence, automates trust, Hirani says.

The clincher for Masters was how the Technology can affect risk. Every hour that a trade hangs suspended between sale and purchase, the chances mount that it won’t be fulfilled, she says. Institutions have to set aside capital to protect themselves from such failures. Since the 2008 crash, regulators in the U.S. and the European Union have directed banks to allocate ever-larger sums to cover their exposures. If the blockchain could shorten the settlement time for, say, syndicated loans, from 20 days to 10 minutes, this risk would be reduced and capital would be freed up.

Blockchain Technology is still immature but is advancing rapidly and what it could mean for back office efficiency is truly mind blowing. When I worked at Bloomberg I would often visit back office operations in Luxembourg where people were tasked with pricing some pretty obscure fixed income instruments. In an illiquid market it’s difficult to keep track of pricing and often one has to use a best guess solution. The whole issue of different covenants on loans, deals and bond issues is an equally obscure sector. These all represent market inefficiencies that could be done away with using the blockchain.

Email of the day on technological innovation:

This addresses concerns you have voiced about technological change (our ongoing Third Industrial Revolution) leading to the potential disappearance of jobs. The same concern was voiced during previous periods of rapid change in Technology. A quote from the article :

"Technological change increased the demand for other types of labour that were complementary to the new technologies. So, for example, large numbers of supervisors and managers were needed for the vast new factories and companies. Product innovation created completely new markets which demanded completely new types of job."

The article goes on to say that economists at the time could not conceive of the jobs that would appear and my sense is the same is true today.

The real issue for us all is adaptability. Didn't Darwin say something about this?

Thank you for this email and the associated article. The question is not whether some people will lose their jobs due to their skills becoming obsolete because that is already happening. Rather we need to monitor how many new jobs are being created in new sectors as they emerge. Generalisation, adaptability, non-linear thinking, problem solving and creativity represent the buzzwords for the labour force of the next decades because relatively unskilled jobs, heavily regulated by unions are going to less common. People have always followed a “needs must” approach to work and the pace of automation is unlikely to change that.

What the China bears are missing

Thanks to a subscriber for this article from China Spectator which may be of interest. Here is a section:

First, let's address the issue of overstating the GDP. Critics point to the country's weak industrial production, export and investment figures as proof that the country is fudging its number. Lardy, a senior fellow at the Peterson Institute of International Economics, points to a salient fact that many people choose to ignore: the biggest contributor to the country's GDP is now the services industry.

"the skeptics have taken insufficient notice of China's progress in transitioning to its new model of economic growth, one less dependent on expanding industrial output, investment, and exports and more dependent on expanding private consumption expenditure¡±, he says.

Between 2011 and 2014, the size of the service sector as a share of GDP rose by about 4 percentage points to 48 per cent and, at the same time, the share of the industrial sector dropped to 43 per cent of GDP. This is a marked change from a decade ago, when the industrial sector accounted for 47 per cent of the GDP while the service sector only accounted for 41 per cent of the economy.

Considering the size of China's economy -- it's a $US10 trillion behemoth -- the transition is even more impressive. Many services are booming in China, the e-commerce sector grew by 31.4 per cent in 2014. The entertainment sector has been growing at an average of 17 per cent a year between 2010 and 2015. In health care, McKinsey predicts the growth in spending will grow from $US357 billion in 2011 to about $US1 trillion in 2020.

Unfortunately the services sector now accounts for more than 50% of GDP because the industrial and construction sectors have declined so much. The services, consumer discretionary, information Technology and healthcare sectors are most likely to lead the Chinese economy in a recovery not least because they are receiving a great deal of government support. However this was priced in by the impressive outperformance of the Chinext Index and Shenzhen B shares earlier this year.

China Sets Up First Unmanned Factory; All Processes Are Operated By Robots

BEIJING: A Chinese firm specialising in precision Technology has set up the first unmanned factory at Dongguan city where all the processes are operated by robots, regarded as futuristic solution to tide over China's looming demographic crisis and dependence on manual workers.

In the plant, all the processes are operated by computer- controlled robots, computer numerical control machining equipment, unmanned transport trucks and automated warehouse equipment.

The technical staff just sits at the computer and monitors through a central control system.

At the workshop of Changying Precision Technology Company in Dongguan, known as the "world factory", which manufactures cell phone modules, 60 robot arms at 10 production lines polish the modules day and night, state-run People's Daily reported.

Each line has an automatic belt with just three workers who are just responsible for checking lines and monitoring. A few months ago, it required 650 workers to finish this process.

Osborne Should Not Be Squeamish About Luring Business From Scotland

A ban on genetically modified crops, despite its importance to Scotland’s large food and drink industry; the introduction of costly, politically correct gimmicks such as a business pledge that includes scrapping zero hours contracts and a more diverse workforce; state-directed research that even Jeremy Corbyn might regard as a bit old-fashioned; and, of course, the political instability that comes from the constant threat of a fresh independence vote.

Perhaps not very surprisingly, the Scottish Nationalist government in Edinburgh is increasingly imposing anti-business and anti-Technology policies on the country.

That is of course up to them. It is, however, also an opportunity for English regions, and of course Wales and Northern Ireland as well, and one they should not be squeamish about taking.

As Scotland makes itself less and less economically competitive, then London, Newcastle and Cardiff should be aiming to persuade the businesses based there to move south. It is too good an opportunity pass up.

Only this week, the Scottish government demonstrated that it cares more about making right-on political gestures than it does about nurturing a successful economy. It imposed a formal ban on genetically modified crops, despite the fact that the country has a major food and drink industry worth some £14bn a year.

The Scottish wing of the National Farmers Union protested that it was disappointed, pointing out that many of the crops that would now be prohibited had been passed as perfectly safe by the EU.

So did some of the life sciences companies based in Scotland. But never mind. The SNP administration decided that GM food smacked of wicked agri-business and decided to ban it anyway.

In May, the SNP launched a Scottish Business Pledge, a pious document full of the kind of promises Hillary Clinton might come up with on a bad day.

Scottish companies are meant to pledge themselves to scrapping zero contracts, despite the evidence that, despite occasional abuses, plenty of part-time workers actually quite like them, and to promoting vague and woolly goals such as having a more diverse workforce.

Personally, I think any breakup of the United Kingdom would be sad and unfortunate. I also think an independent Scotland ruled by the SNP would be worse off. This is not because Scots cannot compete but because the leftwing SNP is no better for Scotland’s economy than Jeremy Corbyn would be for England’s.

The UK is becoming more federalist. Fair enough, but I think our one nation Conservative government will encourage more growth and higher standards of living throughout the country than leftwing spinoffs. The latter would definitely send more ambitious people to London, as we have also seen with the migration of French people from Socialist France.

MIT designs small, modular, efficient fusion power plant

This article from the KurweilAI newsletter may be of interest to subscribers. Here is a section:

The new reactor is designed for basic research on fusion and also as a potential prototype power plant that could produce 270MW of electrical power. The basic reactor concept and its associated elements are based on well-tested and proven principles developed over decades of research at MIT and around the world, the team says. An experimental tokamak was built at Princeton Plasma Physics Laboratory circa 1980.

The hard part has been confining the superhot plasma — an electrically charged gas — while heating it to temperatures hotter than the cores of stars. This is where the magnetic fields are so important — they effectively trap the heat and particles in the hot center of the device.

While most characteristics of a system tend to vary in proportion to changes in dimensions, the effect of changes in the magnetic field on fusion reactions is much more extreme: The achievable fusion power increases according to the fourth power of the increase in the magnetic field.
Tenfold boost in power

The new superconductors are strong enough to increase fusion power by about a factor of 10 compared to standard superconducting Technology, Sorbom says. This dramatic improvement leads to a cascade of potential improvements in reactor design.

This is a difficult time in markets and some caution is warranted however short-term volatility has no effect on the rate of technological innovation that remains perhaps the most bullish medium-term consideration for investors. Economic development is predicated on access to abundant, reasonably priced energy and fusion Technology represents a powerful potential enabler which is why it is so exciting. We will always need more energy and the challenge is how to generate it as cleanly as possible.

Google And Alphabet: What Does This All Mean?

This article by James Titcomb for Bloomberg may be of interest to subscribers. Here is a section:

Okay, but why? Page and Sergey Brin, who co-founded Google two decades ago, have massively diversified Google from its origins as an internet search engine.

As well as products that help its core business, which is essentially gathering information and delivering internet adverts that are as relevant as possible, such as Android, Gmail and Maps, it has invested in driverless cars, high-speed internet and home gadgets to name just a few.

However, this diversification has created several issues. Investors have raised questions about these heavy investments and whether they are really going to pay off, while the broad collection of operations makes it more difficult for analysts to figure out how the core business is really doing.
Page and Brin, meanwhile, are becoming more focused on the research projects, which may change the world and be highly lucrative, but could take decades to bear fruit. This has led to questions over their commitments to the core business.

Developments such as Google Glass, a first attempt at which was retired last year, have been classed as failures.

So the new structure is seen as a win-win: Google's founders are able to step back from the day-to-day running of Google and focus on the big picture, while investors get a clearer picture of the company they own and are able to understand it better.

"Sergey and I are seriously in the business of starting new things," Page wrote last night.

Last year’s creation of Google’s C-Class of shares resulted in the primary shareholders gaining even greater control of the company. This was not welcomed by investors who saw the move as a sign of deteriorating governance and lack of transparency. This is now beginning to change with the appointment of a new CFO and by delineating accountability within the organisation.

But there’s one super-power lurking behind all these start-ups, fuelling the astronomical growth of the app economy: Facebook.

Through the Facebook Platform, which provides developers with the creative and analytic tools to build, grow and monetise their companies, the social network claims to be one of the major forces shaking up classic business models.

And at its epicentre is Julien Codorniou, a soft-spoken, floppy-haired optimist who hails from Gruissan, a fishing village on the south coast of France that had roughly 1,300 inhabitants when he was born.

Now, Codorniou is Facebook's director of global platform partnerships, managing relationships with countless companies using Facebook's platform to reach the social network's almost 1.5bn users.

Facebook Platform launched in 2007 with the purpose of allowing developers to create external content such as games and news to be played and consumed on Facebook.com. Within a year, around 30,000 apps existed on Facebook, and later the Menlo Park-based company unlocked the platform so that anyone could build an app designed to exist outside of the website.

Today, any app that connects with Facebook's worldwide community of 1.49bn monthly active users – around a fifth of the global population – is considered to be part of the Facebook platform, and a tool as simple as "Login with Facebook" has allowed millions of apps to piggyback on the social network's ready-made audience of half the world's internet users.

“When people think of the Facebook platform they think of a gaming platform on the web,” such as Farmville or Candy Crush, Codorniou told the Telegraph. “Nobody connects the dots when they see Airbnb, Uber and Spotify that Facebook is behind each of these companies. But that’s the ambition – we want to fuel their growth, even if it is invisible to the user.”

I showed my age in describing Facebook as a frivolous company after it was floated. However, in the last two years I have also said that starting with Mark Zuckerberg, Facebook has brilliant management.

This item continues in the Subscriber’s Area, where a PDF of the article is also posted..

Saudi Arabia May Go Broke Before the US Oil Industry Buckles

If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.

Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.

"The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said.

One Saudi expert was blunter. "The policy hasn't worked and it will never work," he said.

By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.

Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments.

The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.

Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. "We've driven down drilling costs by 50pc, and we can see another 30pc ahead," said John Hess, head of the Hess Corporation.

It was the same story from Scott Sheffield, head of Pioneer Natural Resources. "We have just drilled an 18,000 ft well in 16 days in the Permian Basin. Last year it took 30 days," he said.

The North American rig-count has dropped to 664 from 1,608 in October but output still rose to a 43-year high of 9.6m b/d June. It has only just begun to roll over. "The freight train of North American tight oil has kept on coming," said Rex Tillerson, head of Exxon Mobil.

The Saudi’s have or had larger reserves from the sale of conventionally produced oil and gas than other energy exporters but they are all in trouble.

The first remarkable fact about US shale oil and gas production that we are hearing about more frequently is the speed and efficiency with which this Technology has developed, significantly lowering costs in the process.

This item continues in the Subscriber’s Area, where a PDF of AE-P’s article is also posted.

Why AI Could Destroy More Jobs Than it Creates, and How to Save Them

Here is a section commenting on Erik Brynjolfsson, an economist at the Massachusetts Institute of Technology (MIT) and co-author of The Second Machine Age:

Brynjolfsson points out that the rate of technological change is of a different order in the information age to the industrial revolution.

"I think it's going to require a similar level of overall change but it's probably going to have to happen faster. The steam engine was a remarkable breakthrough and really set off the industrial revolution, but as we say in the book it doubled in power and efficiency approximately once every 70 years and quadrupled after 140 years," he said.

"The computer processor doubles in power every 18 months, 10 times greater every five years, it's a very different scale of advancement and it's affecting a broader set of the economy than the steam engine did, in terms of all the cognitive tasks. It's happening a lot faster and more pervasively than before."

But is it correct to link the rate of societal change, and of advances in artificial intelligence, to the breakneck pace at which processors are becoming more powerful? Not everyone agrees.

Nick Jennings, professor of Computer Science at Southampton University has years of experience working with agent-based computing and intelligent systems. He doesn't foresee runaway advances in the field of AI that will reverberate throughout the rest of society.

"[I don't see] major shifts, no," said Jennings. "I see a gradual increase in automation and a gradual increase in the software tools that people have to support them in their day-to-day work. I don't see any non-linearities, I see processing getting better, speeds getting better, more data becoming available and us running more complicated algorithms on that data. I don't see anything that is going to cause a phase change or a disjunction in one go.

Even with computing technologies improving at that "steady, inexorable" rate, jobs may be being destroyed faster than they are created.

For most of the second half of the twentieth century the economic value generated in the US - the country's productivity - grew hand-in-hand with the number of workers. But in 2000 the two measures began to diverge. From the turn of the century a gap opened up between productivity and total employment. By 2011, that delta had widened significantly, reflecting continued economic growth but no associated increase in job creation.

Veteran subscribers will know all about this problem of jobs creation during an accelerating rate of technological innovation, particularly in terms of software. This service has been commenting on it for a number of years.

We know that new jobs are being created, even some as a consequence of software developments, but they are not keeping up with job replacements. Also, they are often lower paid jobs.

This report, posted in the Subscriber's Area, has some graphics which should interest you, not least a comparison of Labor Productivity and Private Employment.

Who benefits most from the loss of jobs? Inevitably, corporations and to a lesser extent governments.

Here is an early, prescient quote from the article on this subject:

“The role of humans as the most important factor of production is bound to diminish in the same way that the role of horses in agricultural production was first diminished and then eliminated by the introduction of tractors.”

Virtual Reality Is Not Just About Games: Nongaming applications sneak up on an unsuspecting public

This article by Christopher Mims for the Wall Street Journal may be of interest to subscribers. Here is a section:

Imagine a version of Google Maps that doesn’t end at the front door of buildings, or an Instagram consisting of immersive experiences rather than snapshots.

“Immersive 3-D content is the obvious next thing after video,” Facebook CEO Mark Zuckerberg said during a recent earnings call.

All of this is possible because, like the PC and the smartphone, virtual reality isn’t so much a single Technology as the happy coincidence of a bunch of related ones. Motion tracking, 3-D capture, ultra-high-resolution displays, fast graphics chips and a deep library of 3-D software developed for games and other applications are coming together at just the right time. Google, Facebook, Sony, HTC, Microsoft and countless smaller competitors have already made public their plans for VR, and given its hiring and patents in the area, it’s likely Apple is working on it too.

VR is a Technology that is truly in its infancy, despite decades of work in academia, industry and the military. Rapid progress in frame rates, displays, interfaces and more realistic rendering are already in everyone’s development pipeline.

“Keep in mind, this is just the Atari 2600 of VR,” says Cymatic Bruce, head of developer relations at Altspace VR, as he helps me take off a bulky headset I wore to experiment inside the company’s VR play space.

Microsoft’s release of Windows 10 appears to represent a change of focus for the software company since the product is now free but comes with a suite of features aimed at encouraging spending. The purchase of Minecraft last year and bundling an Xbox controller with every Oculus Rift when they are eventually shipped represent additional insights suggesting Microsoft sees its future as a media enabling platform rather than simply a spreadsheet builder and user interface.

Pariah status

This has been an extremely difficult period for mining companies, not least as the major iron-ore and diversified mega-cap companies have ramped up supply into a falling market in order recapture market share. From an investor’s perspective, one is left with a dilemma. Many are asking whether it is better to hold on in the hope prices will recover. Others have been disappointed in their attempts to buy only to see prices fall even further. Against a background where Technology shares such as Apple, Google, Amazon and Facebook have accounted for the majority of stock market returns this year, underperforming sectors such as commodities have fallen into relative obscurity.

Thync review: Where we just say yes to a drug-like, brain-zapping wearable

This article by Will Shanklin for Gizmag may be of interest to subscribers. Here is a section:

The key is the locations of the pads: Thync believes it's found the right target areas to tweak your brain's natural stress responses in one direction or the other. One strip is designed to produce a calming effect ("calm vibe") while the other strip makes you feel more alert ("energy vibe"). And each "vibe" also has three sub-categories within it, varying in intensity and length of time.

It's like choosing a workout program, only instead of doing squats or lunges, the Technology does the work for you. You just sit there and enjoy the results.

If this all sounds pretty far-out, like something a burned-out space junkie would be using in an 80's-era sci-fi novel, we completely understand. But for me, it works exactly as advertised, either relaxing or energizing me (or both) – not only while I'm using it, but for several hours afterwards.

Skeptics will also be quick to question whether Thync is just an expensive placebo effect. And while this is only one person's experience and opinion – take it as you will – I don't see how there's any way that's the case with me. If this is a placebo, then all the pot, caffeine and meditation I've ever tried must be as well.

This product would appear to claim many of the same benefits as electroshock treatment but with more nuanced application and without the amnesia associated with the more violent treatment. Thync is still a privately held company but if the product does as it says and represents a non-chemical treatment for stress and lack of motivation then an IPO will be a potentially attractive proposition.

Submarine Killers: India $61 Billion Warning to China

In a dock opening onto the Hooghly River near central Kolkata, one of India’s most lethal new weapons is going through a final outfit.

The Kadmatt is a submarine killer, bristling with Technology to sniff out and destroy underwater predators. It’s the second of four warships in India’s first dedicated anti-submarine force -- a key part of plans to spend at least $61 billion on expanding the navy’s size by about half in 12 years.

The build-up is mostly aimed at deterring China from establishing a foothold in the Indian Ocean. It also serves another goal: Transforming India’s warship-building industry into an exporting force that can supply the region, including U.S. partners in Asia wary of China’s increased assertiveness.

“India’s naval build-up is certainly occurring in the context of India moving towards a greater alignment with U.S. and its allies to balance China,” said David Brewster, a specialist in Indo-Pacific security at the Australian National University in Canberra. “India wants to be able to demonstrate that Beijing’s activities in South Asia do not come without a cost, and Delhi is also able to play in China’s neighborhood.”

China showed its growing naval prowess when it deployed a nuclear-powered submarine to patrol the Indian Ocean for the first time last year, while a diesel-powered one docked twice in Sri Lanka. India says another Chinese submarine docked in May and July in Pakistan, which is reportedly looking to buy eight submarines in what would be China’s biggest arms export deal.

The U.S.’s Seventh Fleet has patrolled Asia’s waters since World War II and is backing India’s naval expansion. On a January visit to New Delhi, President Barack Obama pledged to explore ways of sharing aircraft carrier Technology. The two countries also flagged the need to safeguard maritime security in the South China Sea, where neither has territorial claims.

There has been considerable concern over Communist China’s rapid military expansion during the last decade, not least concerning its maritime and island claims within the South China Sea. These claims are clearly not based on international maritime agreements, including the United Nations Convention on the Law of the Sea. Consequently, in the South China Sea alone, China is in dispute with Brunei, Taiwan, Malaysia the Philippines and Vietnam, and proceeding on a might is right basis.

These countries would like to see the United States remain a presence in the region. The US, in turn, has a strong alliance with Japan, and now increasing also with India, which it sees as potentially the fastest growing regional power. India, which also has a longstanding boarder dispute with China, will almost certainly receive at least technological assistance from the US in developing its navy. This will help India’s economy to grow, as it aims to export naval equipment to allies within the Asia Pacific region and beyond.

Clearly, as the Asia Pacific region develops there will be a considerable increase in military strength, led by India and Japan, mainly in response to China. This is not without some risk, and thus it always was. However, a balance of power, which, incidentally Europe does not really have with NATO, is also a restraint on territorial ambitions.

Minimum Wage Wars

Thanks to a subscriber for this article by Sydney Williams at Monness, Crespi, Hardt & Co., Inc which may be of interest. Here is a section:

The numbers suggest that a large percentage of minimum wage jobs are the teen-age children of middle class and upper-income families. Many of the rest are starter jobs – the kind we all remember when first we went to work. Estimates are that an increase in the minimum wage to $15 per hour will cost 500,000 jobs. I suspect it may be more.

Technology has already replaced many service-sector jobs. In some restaurants, one can order on I-Pads. Technology has replaced many secretarial jobs. The internet has made it easier to form a corporation and it has reduced the time for research. Travel agents have become an endangered species. The President has suggested that the servicing of smaller 401K and IRA accounts should be automated. Three weeks ago, when my wife was recovering from a fall, robots delivered medicines to her hospital floor. Technology will continue to replace jobs. It is one reason why STEM jobs have been the best paying for recent college graduates. David Brooks wrote recently in the New York Times: “If you raise the price on a worker, employers will hire fewer and you’ll end up hurting the people you meant to help.”

When New York Governor Andrew Cuomo signaled his support for the higher minimum wage, he disingenuously said: “You cannot live and support a family of four on $18,000 a year in the state of New York.” (The State of New York’s minimum wage is $8.75 per hour.) His statement was purely political, as were similar endorsements from Hillary Clinton, Bernie Sanders and Martin O’Malley. There are few families of four dependent on a sole provider making the minimum wage. Those jobs, as I wrote, are mostly held by the young – teenagers or young people starting a career. It is jobs, not raising the minimum wage that will help the poor. Raising the minimum wage will not narrow the income gap. It will cost jobs and force some businesses to close. It is not the panacea it is claimed and it detracts from the real task – job creation.

I went to visit a sewing factory in the San Fernando Valley a few weeks ago. They have 15 workers and specialise in sewing which is still almost all done by hand. This is true of the industry globally. The garment industry is people intensive and wages are about $10 an hour which is above the minimum wage but less than the $15 that will need to be paid in Los Angeles County from 2018. The company survives by doing small runs for singers and YouTube stars who need the work done fast and have high margins. Los Angeles has a large garment district and there are a lot of factories.

Martin Spring: On Target: A European Success Story

My thanks to this knowledgeable and highly experienced author for his perspective on the global financial scene. This issue opens with a good look at Denmark, an outstanding performer among European stock markets. Here is the beginning of a topical section: Why Global Economic Growth Is Sluggish:

There’s bullish talk about a coming pick-up in global economic growth, but for the moment, the signals are negative. Trends in the global economy look increasingly ominous.

Global trade is sluggish. In the first four months of the year, it rose only 2 per cent in volume terms, fell 12 per cent in dollar terms, year-on-year. Exports of Asian countries that are particularly sensitive indicators are looking awful.

Investment in expanding productive capacity is weak. The gap between new orders and stocks held by manufacturers is the poorest in three years.

Inflation is trending downwards in the US, Europe, China and Japan, with the rise in consumer prices in purchasing-power terms down over the past two years from 3 per cent to 1.2 per cent.

The OECD – the think-tank of mature economies – has cut its forecast for growth this year from 3.7 per cent to 3.1. The US is only expected to grow 1.1 per cent according to the Atlanta Fed’s latest GDP Now model. Europe and Japan are forecast to deliver minimal growth, while the most dynamic constituent of the world economy, China, is losing momentum.

Of course, there are some positive factors to counter the gloom. The fall in oil prices, by improving users‟ spending power, is adding 0.25 percentage points to economic growth. Central banks show no sign of retreating from their extreme money and credit creation policies to stimulate growth. In the US unemployment continues to fall, wage gains have started to gain traction, the housing market is looking better.

This is an interesting section and Martin Spring gives plenty of reasons why he still thinks global GDP growth will remain weak for many more years. He could be right and obviously no one knows for sure. I have repeatedly said in recent months that if may take two or three more years before we see a clear improvement in global growth. Fortunately, the more enlightened governments and central bankers understand the challenge. They are also addressing it, from the USA to India and obviously many more countries.

They are also doing so in an environment of globalisation and accelerating technological innovation. These changes are not without significant challenges, but the long-term benefits are likely to be far greater. We already see this in so many areas, from the development of increasingly influential corporate Autonomies, to lower energy costs, and previously unimaginable developments in bioTechnology. This is not just a limited or theoretical net gain for mankind. Look at the increasing growth in the world’s middle classes over the last decade and counting.

Giant Air-Sucking Machines Could Be the Solution to Carbon Dioxide Problem

Canadian company Carbon Engineering is building machines that suck carbon dioxide out of the air by pulling it through a fluid, where it can either be discarded or recycled to be used as fuel.

Trees do the same thing, but the fan machines would ideally be built in areas where you couldn't plant trees, such as deserts, Popular Science reported.

Technologies have already been developed for capturing carbon dioxide from smokestacks before it reaches and pollutes the atmosphere, for example. But Carbon Engineering plans to do it by capturing CO2 that's already in the air, like emissions from cars, trucks, and planes.

Email of the day on valuations

Many a book has been written on the back of the stats that show that buying low P/E, low P/B companies is far, far more rewarding in the long run than buying the expensive stocks regardless of the potential for growth. As you say it is a judgement call and of course momentum can go on for longer than you can remain bearish to serially misquote Keynes! But Jeremy Grantham is fond of saying value managers are never wrong just early! I'd rather wait for those opportunities which are hard to find right now unless you go looking in unusual places like Vietnam and Burma!

Thank you for sharing your experience and for this email of general interest. Thanks also for the related article. Here is a section:

As you can see, every time the market fell to a P/E ratio of between zero and 7x, you would have made, on average and after inflation, 11% a year, every year for a decade The small print, of course, is every time the market was at those levels, there was something so scary, so apocalyptic, so death-of-equities going on, you would have had to force yourself to buy in but, if you did, you saw a fantastic real return.

Whenever you paid a higher price, however, you would have seen a correspondingly worse return and here is the killer – whatever helped you to justify paying a higher price was irrelevant. Better business? Stronger economic environment? Higher growth? World-changing new Technology? It did not matter. What is more, it did not matter even if it turned out you were 100% right about the outcome.

Is it better to enter following a market crash rather than when you are six years into an uptrend? Yes. Is it the only time you should buy? No. The whole point of looking at trends and consistency is so that you can get the rhythm of the market, identify when the best time to participate is, manage the position and identify topping activity which is not something cyclically adjusted P/Es offer. Above all else we have to cultivate the ability to deal with the market as it is rather than how we would like it to be.

The Bacterial Origins of the CRISPR Genome-Editing Revolution

This report by Erik J Sontheimer and Rodolphe Barrangou may be of interest to subscribers. Here is a section:

Like most of the tools that enable modern life science research, the recent genome-editing revolution has its biological roots in the world of bacteria and archaea. Clustered, regularly interspaced, short palindromic repeats (CRISPR) loci are found in the genomes of many bacteria and most archaea, and underlie an adaptive immune system that protects the host cell against invasive nucleic acids such as viral genomes. In recent years, engineered versions of these systems have enabled efficient DNA targeting in living cells from dozens of species (including humans and other eukaryotes), and the exploitation of the resulting endogenous DNA repair pathways has provided a route to fast, easy, and affordable genome editing. In only three years after RNA-guided DNA cleavage was first harnessed, the ability to edit genomes via simple, userdefined RNA sequences has already revolutionized nearly all areas of biological science. CRISPR-based technologies are now poised to similarly revolutionize many facets of clinical medicine, and even promise to advance the long-term goal of directly editing genomic sequences of patients with inherited disease. In this review, we describe the biological and mechanistic basis for these remarkable immune systems, and how their engineered derivatives are revolutionizing basic and clinical research.

BioTechnology represents a truly exiting story and has real potential to greatly enhance quality of life for millions if not billions of people over the coming decades. However related stocks are somewhat overbought at the present time and potential for mean reversion is looking more likely than not.

New Japanese hotel has robot staff and no room keys

This article by Stu Roberts for GizMag may be of interest to subscribers. Here is a section:

Robots are deployed at the front desk to help guests check-in and out. According to the Henn-na Hotel, it's possible to hold a conversation with the "warm" and "friendly" robots while they get on with their work. Alternatively, self-service check-in and check-out eliminates the need to go to the front desk or to wait in line.

There are porter robots employed to carry luggage to and from rooms, and cleaning robots employed to keep the hotel spotless of their own accord. There is also a robot employed in the cloak room. Objects up to the size of small bags can be handed over and the robot will put them away in secure lockers. When the belongings are needed, the robot will locate them in the correct locker and hand them back to the guest.

This Huffington Post article from more than a year ago highlights how Technology that already exists can be combined to displace waiting staff at restaurants. Today’s news that New York has voted to increase fast food wages to $15 following Los Angeles’ decision to raise its minimum wage to $15 earlier this year will only accelerate the incentive for technological integration

Hackers Show They Can Take Control of Moving Jeep Cherokee

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

The two hackers, Charlie Miller, a Twitter employee based in St. Louis, and Chris Valasek, a director at the security firm IOActive, demonstrated in an article and video published in Technology magazine Wired their ability to wirelessly access a vehicle’s systems. The researchers, who have been probing vulnerabilities in connected automobiles for years, previously could only take over a car by hacking from a laptop connected by cable to a moving vehicle.

Mr. Miller defended releasing the information, arguing he is improving auto safety by drawing attention to the issue. “We both want the same thing, to keep drivers safe from a cyberattack,” said Mr. Miller, who used to work on hacking tools for the NSA. “All I can do is point out flaws in their vehicles, get other researchers working on this issue and make suggestions.”

The lesson here is that not only is every internet connected device susceptible to outside interference but that interested parties have the capability to achieve their goals with relative ease. Cybersecurity remains a growth industry not least as our homes become progressively more connected and as the online economy grows and potentially overtakes the physical economy in the coming decades.

Apple: A Weird, One-Sided Relationship with Australia

Lost in the collective freak-out over Apple's quarterly results this morning is the fact that the tech giant's cash stash is now above $US200 billion ($270 billion). And some of that is thought to be invested in Australian assets. How much? We don't know for sure.

The tech colossus added another US$9 billion to its vast position in cash and short-term investments, bringing it to $203 billion - more than the foreign reserves of countries like Germany, the UK, France, Canada and yes, Australia.

Since Australia has one of the highest iPhone penetration rates in the world, it's reasonable to assume it generated some of that money in the last quarter (and all those quarters before) by selling devices on these shores.

Yet, as reporting by the likes of The Australian Financial Review's Neil Chenowethhas shown, Apple doesn't pay much tax on its sales here, using notoriously complex schemes to shifts its profits to lower taxing jurisdictions. Apple doesn't repatriate profits generated outside the US into its home country due to steep taxes, but its cash is managed by a secretive offshoot in the Nevada desert called Braeburn Capital. It's not unreasonable to think Braeburn has invested some of that cash into Australian government debt (which carries a triple A rating and offers higher interest rates than other countries do). The company didn't immediately respond to our enquiries on this issue.

Apple also quite possibly owns debt issued by Australian banks. A recent report by Bloomberg said representatives from all of Australia's big four banks, heavily reliant on overseas funding to write loans domestically, had sent representatives to visit Braeburn.

This five-year weekly chart of Apple shows trading during Wall Street’s official market open hours, as the results were reported after Tuesday’s close. However, I can tell you that iconic Apple is trading over $10 lower, uncomfortably close to retesting prior support near $120.

Make way for the Sun

Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section:

India has made an exceptional commitment to solar energy by raising its 2022 target five-fold to 100GW and its Renewable Energy target to 175GW. The government has announced an unprecedented policy push and states are providing the necessary infrastructure. Annual investments in solar could surpass investment in coal by 2019-20, with USD 35bn committed by global players. For local IPPs, solar has to be an inherent part of their expansion strategy, as RE obligations become strictly enforceable and cost of coal power increases. NTPC, Adani and RPWR are ahead in this development cycle which adds 10-15% to our current valuations. NTPC is our top pick.

We raise our solar power forecast by 240%
Global majors have committed USD 35bn+ to the Indian solar sector. By 2020, annual solar power capacity additions and investments could surpass those in coal power projects. We are raising our solar power forecasts by 240% to 34GW by 2020. This is on the back of strong commissioning (4.5GW), even stronger pipeline - under construction (~5.1GW), and new projects (~15GW). By then, renewables could account for a significant 20% of power capacities in India, per our forecast. Private sector interest is decisively moving towards solar from coal power, and we foresee numerous opportunities of fund-raising, yield co-structuring and M&A activity.

RE can reach 20% of capacity but we see challenges to higher penetration
(1) Transmission constraints and integration of diurnal power into the grid are risks, without peak-load management capability. Solar absorption in Rajasthan could see challenges like wind in Tamil Nadu, given policy target of 25GW solar vs. peak-demand of 11GW. (2) A further risk is the enforcement of RE purchase obligations (RPOs) given weak finances of state distribution cos, and hence large-scale absorption of solar could be a concern (INR 170bn additional burden by 2020E). (3) Other issues include financing, land acquisition, limited domestic manufacturing, and returns/reliability of baseline data.

Impact on the thermal power producers
Solar could have a significant impact on day power rates, given that generation peaks between 9am and 6pm. In turn, this could reduce the coal requirement by ~8% or 70mnt by 2020E, largely impacting the highest cost of power, i.e., imported coal – leading to large savings (~USD 17bn/pa).

India has highly favourably demographics but if that dividend is to be realised the country needs to embark on a long-term policy of industrialisation. Narendra Modi’s government understands what has to be done and is gradually making the changes needed to unlock India’s considerable development potential.

On its path to industrialisation China built huge numbers of coal fired power stations which facilitated growth but poisoned the air. It is now faced with an environment challenge that is proving expensive to correct. India has the potential to partially circumvent at least these challenges by taking advantage of improvements in Technology that were not available to China when it began to industrialise.

Silicon Valley Does Not Believe U.S. Productivity Is Down

This article by Timothy Aeppel for the Wall Street Journal may be of interest to subscribers. Here is a section:

“I’m always reluctant to point a finger at failure in measurement because it feels like you’re making excuses, ” says Marco Annunziata, chief economist for General Electric Co. One explanation for the paradox of low productivity in a time of technical advances may be the uneven way innovation spreads, he says. Some firms gobble up new Technology while others don’t, so productivity growth could be lagging because many U.S. companies are laggards.

American business since the recession has, in fact, been stingy about investing in new equipment.
It may also be harder for companies to charge higher prices for innovated product lines, Preston McAfee, Microsoft Corp.’s chief economist says. For instance, when UPS started using new GPS Technology to speed package deliveries, it couldn’t charge more for the improvement in service because FedEx and other carriers could easily match them.

“Maybe our mysterious productivity gain is in the form of less inflation than we deserve,” Mr. McAfee says.

Back at Google, Mr. Varian admits that slow and uneven adoption of new Technology puzzles him. “If you go to Europe,” he says of restaurants there, “all the servers have hand-held devices for ordering, payment.” But the Technology has yet to spread across the U.S., even though it would make a slice of the economy more productive.

Productivity is the kind of subject that gets economists animated with some saying they see none over the last decade and that in fact there is no prospect of it getting better while others believe we are on the cusp of meaningful improvement. At this service we fall squarely into the latter camp.

Mexico Battles Bad Timing in 1st Sale of Oil Fields Since 1930s

This article by Adam Williams and Juan Pablo Spinetto for Bloomberg may be of interest to subscribers. Here is a section:

Mexico waited 77 years to invite foreign oil producers back into its borders. That was one year too many.

The move to lure tens of billions of dollars from the likes of Exxon Mobil Corp. will be put to the test for the first time at an oilfield auction on Wednesday. With oil prices down by about half since last year, five of 38 potential bidders including Glencore Plc, Noble Energy Inc. and even Mexico’s state-owned oil producer have pulled out.

President Enrique Pena Nieto moved to end the state monopoly after poor drilling infrastructure and Technology failed to reverse a decade-long production decline that reduced government revenue. To lure investments now, Mexico will probably get a much smaller share of profits than it would have a year ago.

“They shaped expectations at a $100-per-barrel market and we are way off that now,” Wilbur Matthews, chief executive officer of San Antonio-based Vaquero Global Investment, which oversees more than $100 million of assets including oil-producer bonds, said by phone July 10.

Favourable geology doesn’t just stop at the border between Texas and Mexico. Officials must have been looking on with envy as the shale boom took off in the US south west. Mexico’s state owned oil company dealt with declining output. Today’s news of Iran reaching an agreement to end sanctions and increase oil exports is another reason for Mexico to ramp production. The country will not get the same price they were hoping for from producing unconventional supplies and boosting offshore but it has little choice but to develop these reserves if the hole in its budget is to be repaired.

Email of the day on oil prices and Canadian producers

I'm looking for your view again on the Canadian energy sector. I obviously am aware of the effect Technology has had on the shale boom etc...I do disagree with most assertions that there is a flood of supply in oil at these price levels. Anyway, aside from that- how do we go into this massive global GDP growth phase and not require an abundance of resources of all kinds? Technology has brought on supply but they require much higher prices to break even. Help me reconcile how we have this huge growth backdrop and yet the market is pricing in disaster levels in Canada? Is the energy sector forever dead or is this a tremendous buying opportunity? Thanks as always. Hope you and your family are well.

Thank you for a question sure to be of interest to the Collective. My family are all in rude health thank you. The oil sector has a lot of moving parts so let’s try to pick it apart.

Saudi Arabia is pumping oil like it is going out of fashion and in a sense it is. The evolution of solar in particular, but also other renewables, batteries, electric cars, hydrogen fuel cells and the migration of work onto the cloud mean that oil now has challengers both as a transport fuel and for heating.

Refracking Is the Hot New Craze Sweeping Across Shale Oil Fields

This article by Dan Murtaugh, Lynn Doan and Bradley Olson for Bloomberg may be of interest to subscribers. Here is a section:

A study by Bloomberg Intelligence of about 80 wells that were originally tapped in North Dakota’s Bakken formation in 2008 or 2009 and then refracked again years later shows a clear pickup in output. The wells on average produced more than 30 percent more oil in the month after the refrack than they did after the original completion, according to analysts William Foiles and Peter Pulikkan.

While these kinds of increases are important to traditional drillers, they’re crucial in the shale industry, where output can start falling within days of a well being tapped. Companies such as EOG Resources Inc., the largest shale oil producer, have long acknowledged that they generally are recovering just a small fraction of the oil and gas in place in the biggest and most prolific reservoirs.

“We’ve seen big changes in completion Technology, and it looks like that’s only going to continue,” said R.T. Dukes, an upstream analyst at Wood Mackenzie in Houston. He estimates that there are about 100,000 horizontal wells that could be restimulated. “At that point, it becomes significant.”

A subscriber contributed an informative email last week highlighting how the array of terms associated with hydraulic fracturing can be useful when playing scrabble but I got to thinking about the potential for Technology to increase well output as a result. Refracking is not without risk, but the economics of the process when a well has already been drilled are compelling particularly when development budgets have been slashed due to low prices.

Platinum into the next decade

Thanks to a subscriber for this detailed report offering a nuanced view on the platinum market which may be of interest. Here is a section:

The world still needs more platinum despite the fall in Autocat loadings
The rise in electric vehicles (EV’s with very low or no PGM’s) will reduce the average vehicle platinum loading and contribute to lower demand growth than we have seen historically. Importantly however, under what we consider reasonable (2.6% CAGR) vehicle demand growth, we still forecast growth in gross Autocat demand. A modest increase in fuel cell vehicles (with high platinum loadings) is likely to offset some of the platinum demand destruction from EV’s. Furthermore a “catch-up” in emission standards in the emerging markets such as India and China should also offset the general trend in declining loadings. We outline our forecasts for platinum. Under our base case, we forecast that an additional 1.5Moz will be required by 2030.

The Auto sector is nearly self sufficient due to recycling.
We forecast a continuation in the trend of the increasing metal units being returned to the market over the next fifteen years. The three major Autocat producers (BASF, Johnson Matthey and Umicore) are all adding recycling refining capacity, specifically targeting recycled material. Furthermore, the tranches of Autocats being returned to the market over the next few years all have higher PGM loadings, especially in platinum. We forecast Autocat platinum volumes to double by 2030, which equates to a CAGR of 4%.

However, the CAGR between 2014 and 2021 is likely to be closer to 8%.
We estimate that the Autocat industry will be a net supplier to the market up until 2020, whilst the additional new ounces required by 2025 will be negligible. By 2030, the additional requirement should be 300koz, equivalent to a large platinum mine, or a two mid-sized mines. The net result is that Platinum demand (post recycling) growth should be slower over the next fifteen years, compared to the historical trend. We estimate a CAGR of 1.1% versus the trend (1975 – 2014) of 2.2%.

Enough replacement ounces from the existing supply base until 2021
The amount of new platinum ounces required from the Southern African mining industry is limited, especially over the next seven years. The existing fleet of development and replacement projects should be sufficient to offset the endemic grade decline and mine depletion (see Figure 6). Furthermore, these projects have favourable economics relative to the current production base, as most projects have also sunk significant capex, lowering the return requirement as a result.

The automotive sector is in a process of evolution with China mandating greater use of electric vehicles and tighter emission control while Tesla represents the cool side of the sector. Toyota, Linde, among others, and the platinum miners are championing the build out of hydrogen fuel cells. Both represent corollaries to innovation of solar and wind Technology that is making distributed electricity production possible. Sergio Marchionne at Fiat is arguing for fabless manufacturing in the automotive sector which has the potential to act as an additional catalyst for the sector.

German Wind-to-Hydrogen Plant Takes Car-Fuel Battle to Tesla

This article by Alex Webb for Bloomberg may be of interest to subscribers. Here is a section:

Still, hydrogen-fuelled cars have two main advantages over their battery-powered rivals, said Salim Morsy, a New-York based analyst for Bloomberg New Energy Finance.

“They are faster to refuel and have much longer ranges than electric ones,” the analyst said. “It can take just five minutes to refuel a hydrogen car for a range of 400 miles, compared to up to a seven hour charge for an electric vehicle to travel just 200 miles.”

Linde says Energiepark Mainz could help put an end to the criticism that hydrogen fuel cells are only marginally more environmentally friendly than traditional combustion vehicles, and allow the gas to be extracted anywhere there’s wind and water. BMW AG is also starting tests of a vehicle powered by hydrogen this month.

In 1874 Jules Verne hypothesised in the Mysterious Island “water will one day be employed as fuel, that hydrogen and oxygen of which it is constituted will be used”. It’s been a long time coming and we are not there yet but producing hydrogen cheaply and cleanly represents a major breakthrough in the potential for it to be reused as a transport fuel. Toyota putting the Mirai into production represents a major bet that the Technology has reached commercial utility.

Musings from the Oil Patch June 30th 2015

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section on Canadian oil supply:

The significance of the oil sands on global oil supply cannot be ignored. Over the past five years, oil sands output has grown by 1.1 mmb/d, fully one-fifth of the total oil production growth for North America. The impact of lower oil prices on the oil sands cannot be missed. Early in 2014, Western Canada Select, a heavy oil price market, was selling at $86 a barrel. By the end of March, that marker was trading below $30 a barrel. This is when, according to oil industry consultant Rystad Energy, new oil sands projects require a price of $100 a barrel in order to breakeven. What’s been the impact of the price decline on the Canadian oil industry?

In February, Royal Dutch Shell (RDS.A-NYSE) withdrew its application to build a new 200,000 barrels per day (b/d) mine at Pierre River, north of Fort McMurray. In May, the company announced it would delay for several years a new 80,000 b/d in situ oil sands project at Carmon Creek near Peace River. The significance of these projects is highlighted when one realizes that Shell currently operates 225,000 b/d of oil sands production. Other projects are being delayed as companies plan to bring much smaller in situ projects into production at a delayed pace in order to manage their cash flow and capital investment requirements.

A June 16th report from Ernst & Young LLP projects a 30% decline in Canadian oil sands spending, bringing this year’s investment to $23 billion, down from an expected $33 billion. The result of this spending decline and the announcements by several producers to stop or delay new oil sands mines and in situ projects means total oil production will be 17% lower by 2030 compared to the target output in the 2014 forecast provided by the Canadian Association of Petroleum Producers (CAPP).

In addition to cutting new investment, oil sands producers are looking at ways to cut their operating costs to help improve their breakeven prices. Suncor Energy (SU-NYSE), a significant oil sands producer, has said it plans to replace 800 dump truck drivers with automated trucks at its oil sands mines. That move, which is a huge boost for autonomous vehicle Technology, is projected to save the company C$200,000 per driver.

Decisions to postpone or cancel spending on new projects has long-term consequences for oil supply growth forecasts not least when this situation is not limited to Alberta. Oil and gas companies are cutting expenditure wherever they can in order to remain profitable in what could be a persistently low price environment, at least relative to the levels that prevailed until a year ago.

Fintech reloaded Traditional banks as digital ecosystems

Thanks to a subscriber for this report from Deutsche Bank which may be of interest to subscribers. Here is a section:

Isolated solutions are often only implemented in a fragmented fashion from division to division. Innovation processes are still being driven forward laboriously using an outdated silo approach. Furthermore, many banks' command of the global “language of the internet” is still deficient. The banks will not achieve resounding success using such methods. Digital change requires far-reaching structural reforms that extend beyond all internal and external bank processes and systems.

The new market players from the non-bank sector, by contrast, have an almost perfect understanding of the language of the internet. First and foremost it is the scarcely regulated digital ecosystems, but there are also many fintechs that are using their platforms and ingenious “walled garden” strategies to dominate markets across a range of sectors. Their recipe for success is based on the harmonious interplay between implemented hardware and software. Via the optimum interlinking and utilisation of compatible and interoperable standards/technologies we – the platform-spoiled consumers – are courted with attractive products and services conveniently, globally and from a single source.

Traditional banks could do this, too, however. This now provides the opportunity to swiftly learn and adopt the strengths and particularly the monetarisation strategies (walled gardens) of the successful digital ecosystems.

There are many benefits to be gained by banks that transform themselves into platform-based, digital banking ecosystems. Apart from easy access to numerous personalised products and services, including those of external providers, as well as a more secure IT environment, the customer can also make interactive contributions on the financial platform in a variety of useful networks. Furthermore, the banking ecosystem offers a flexible corporate architecture that will in future enable as-yet-unimagined technologies to be docked onto one's own infrastructure in a timely fashion and at an acceptable cost.

Fintech (finance Technology) is rapidly advancing as the evolution of the block chain, demand for enhanced online services and the economies of scale represented by services delivered online coalesce to drive the sector’s growth.

Chinese Stock Plunge Leaves State Media Speechless

This article from Bloomberg News may be of interest to subscribers. Here is a section:

In a front-page commentary on Tuesday, the China Securities Journal said the nation’s “liquidity bull market” was “taking a break.” Future gains would be “slow” and driven by government efforts to reform state-owned companies, the paper said, echoing an earlier article by the state-run Securities Times.

The takeaway is that authorities are trying to discourage speculative bets on the highest-flying stocks, Yan said. Instead, the government wants to steer money toward state-run companies, which tend to trade at lower valuations.

The message appears to be sinking in. Margin debt, a favorite tool of speculators, has dropped for four straight days on the Shanghai Stock Exchange. Technology shares, which almost doubled this year, lagged behind the broader market this week. Government-run utilities, meanwhile, posted some of the biggest gains.

If the chatter on Mrs.Treacy’s Wechat network is anything to go by, speculators have been heading for the door in droves in response to this week’s drawdown. That would be in line with reports of margin debt contracting.
The Chinext Index of Shenzhen listed growth companies has a P/E of 98. 79 of its 100 constituents were down the daily limit of 10% today. Trading was halted on 11 more. The Index was the primary destination of speculative flows over the last six months and is now rapidly unwinding its overbought condition following an accelerated advance.

Greece 93 Percent Certain to Keep Euro This Year, Betfair Says

Gamblers increasingly see Greece staying in the euro region amid optimism a deal can be sealed to keep aid flowing to Athens.

Betfair Group Plc put the odds of Greece not leaving the currency bloc this year at 1/14, meaning a successful 14-pound bet ($22) wins one pound, compared with 1/5 on Monday. Those odds imply a 93 percent chance Greece will keep the euro, Betfair said.

“Punters have clearly made up their mind that Greece will stay in the euro zone, for the remainder of this year at least,” said Naomi Totten, a spokeswoman for the London-based betting company.

Betting markets can provide clues to the direction of events. So certain was Betfair of the outcome of the Scottish referendum last year, it paid out on voters rejecting independence two days before the ballot, even after polls suggesting a tight contest had sent the pound tumbling.

Markets began to discount an agreement enabling Greece to stay within the Eurozone on Monday. This will please equity bulls and anyone who wishes the Euro region well, including the USA’s government. The US Federal Reserve will feel that a major international uncertainty, which would have most likely caused it to delay further that first interest rate increase, has been removed. However, it will view today’s rise in the Dollar Index with dismay. The Fed could intervene once again, although at best this is a policy only used when the currency has changed sufficiently rapidly to impede the economy, as we saw with 1Q’s GDP figures, including a slowdown in corporate profit growth. Moreover, Janet Yellen will know that there are good reasons to expect the US Dollar to strengthen further over the long term, not least because of America’s Technology lead. The Fed wants to raise rates gradually but it does not want this to boost the Dollar. Therefore it could hope that this may be a case of ‘buy the rumour, sell the news.’ However, if the Dollar continues to rally towards it March-April highs, it could try to jawbone it lower and/or sell it aggressively should it approach 100 once again.

The Way Humans Get Electricity Is About to Change Forever

This article by Tom Randall for Bloomberg may be of interest to subscribers. Here is a section:

The price of solar power will continue to fall, until it becomes the cheapest form of power in a rapidly expanding number of national markets. By 2026, utility-scale solar will be competitive for the majority of the world, according to BNEF. The lifetime cost of a photovoltaic solar-power plant will drop by almost half over the next 25 years, even as the prices of fossil fuels creep higher.

Solar power will eventually get so cheap that it will outcompete new fossil-fuel plants and even start to supplant some existing coal and gas plants, potentially stranding billions in fossil-fuel infrastructure. The industrial age was built on coal. The next 25 years will be the end of its dominance.

2. Solar Billions Become Solar Trillions
With solar power so cheap, investments will surge. Expect $3.7 trillion in solar investments between now and 2040, according to BNEF. Solar alone will account for more than a third of new power capacity worldwide. Here's how that looks on a chart, with solar appropriately dressed in yellow and fossil fuels in pernicious gray:

3. The Revolution Will Be Decentralized
The biggest solar revolution will take place on rooftops. High electricity prices and cheap residential battery storage will make small-scale rooftop solar ever more attractive, driving a 17-fold increase in installations. By 2040, rooftop solar will be cheaper than electricity from the grid in every major economy, and almost 13 percent of electricity worldwide will be generated from small-scale solar systems.

The pace of technological innovation in solar is rapid and the argument that Moore’s law is applicable is gaining ground as the sector attached increasing research and development spending. The difficulties reported in getting the Ivanpah concentrated solar facility, in the Mojave Desert, up to peak performance is a setback suggesting the time required to deliver new technologies might be longer than some are currently envisaging. Here is a section from a Huffington Post piece dated November 17th:

"During startup we have experienced ... equipment challenges, typical with any new Technology, combined with irregular weather patterns," NRG spokesman Jeff Holland said in a statement. "We are confident that Ivanpah's long-term generation projections will meet expectations."

The Technology used at Ivanpah is different than the familiar photovoltaic panels commonly used for rooftop solar installations. The plant's solar-thermal system — sometimes called concentrated-solar thermal — relies on nearly 350,000 computer-controlled mirrors at the site, each the size of a garage door.

Biotech still marching higher

The iShares BioTechnology ETF broke out to new highs on Friday and extended its advance today. This remains a steep but consistent advance and a break in the progression of higher reaction lows would be required to question the advance.

The State Of U.S. Listed China Based Companies Going Private

This article from Benzinga may be of interest to subscribers. Here is a section:

We believe part of the motivation for management teams to welcome going private deals is the belief by many investors that the China "A" share stock market may see a sharp correction within the next several months.

The Chinese "A" share stock market contains exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange, where shares of China mainland-based companies are listed. "A" shares are generally only available for purchase by China mainland citizens.~

Thus, ChinaHyrbid management teams and private equity firms may be scurrying to take advantage of the huge valuation gap between ChinaHyrbids and "A" share companies – before the "A" share market corrects – by going private and then eventually re-IPOing in China at much higher valuation multiples.

For example, the Chinex Price Index (SHE: 399006), which is the index that includes small cap growth companies in the China A share market, has an average P/E of 115 as of June 18, 2015. However, the non-binding go private price of QIHU of $77.00 is only 22 times of the analyst estimated EPS in 2015.

The Chinese government views the internet as just another organ of the Party’s apparatus like roads or TV stations. The challenge they have is that private sector entrepreneurs who have spearheaded the development of the Chinese Technology sector have lower participation rates in the Party than other sectors. An effort has been underway to recruit more people from the Technology sector into the administration. Wishing to see more companies take out listings on the mainland rather than decamping to the USA, Singapore or Hong Kong can be seen in these terms. It also helps explain the rationale behind the sweeteners currently on offer for returning companies.

The Fintech 2.0 Paper: rebooting financial serv

Thanks to a subscriber for this report which originated at Santander InnoVentures. Here is a section:

In contrast to today’s transaction networks, distributed ledgers eliminate the need for central authorities to certify ownership and clear transactions. Distributed ledgers can be open, verifying anonymous actors in the network, or they can be closed and require actors in the network to be already identified. The best known existing use for the distributed ledger is the cryptocurrency Bitcoin.

Distributed ledger Technology has several attractive features:
Transactions can be made to be irrevocable, and clearing and settlement can be programmed to be near-instantaneous, allowing distributed ledger operators to increase the accuracy of trade data and reduce settlement risk.

Systems operate on a peer-to-peer basis and transactions are near-certain to be correctly executed, allowing distributed ledger operators to eliminate supervision and IT infrastructure, and their associated costs.

Each transaction in the ledger is openly verified by a community of networked users rather than by a central authority, making the distributed ledger tamper-resistant; and each transaction is automatically administered in such a way as to render the transaction history difficult to reverse.
Almost any intangible document or asset can be expressed in code which can be programmed into or referenced by a distributed ledger.

A publicly accessible historical record of all transactions is created, enabling effective monitoring and auditing by participants, supervisors and regulators.

Commercial banks, central banks, stock exchanges and major Technology providers, such as IBM and Samsung, are all exploring the potential uses of distributed ledgers. Fintechs, such as Ripple, Ethereum, Eris Industries10 and HyperLedger, are also developing new ways to exchange data and assets enabled by the Technology. It is only a matter of time before distributed ledgers become a trusted alternative for managing large volumes of transactions.

Contracts, transactions, records of ownership and trade can all be streamlined through the development of blockchain Technology. In an environment where internet security is an increasingly pressing issue, there is little doubt that this is a sector which will become a major part of global legal and financial infrastructures over the next decade.

Email of the day 1

On my Markets Now presentation:

David, in my 15 years as a subscriber I have developed great respect for you. Over this period of time I have spent gobs of money on news letters, services etc. And I have become what I believe to be a pretty successful money manager in my own right. Fuller Treacy Money is the only outside research / commentary I still use all these years later. I'll argue any day of the week that Dennis Gartman should be a plumber and you should be on CNBC (or Eoin).

That all being said, this is a bell you have rung more often than I can remember. I will ask you the same thing I have asked you every other time, "what are you seeing on the charts that tells you this?" It's not possible that you are caught up in the day to day media driven noise. You must be seeing something I'm not because there is nothing in the rates charts that shows this to be true. Even with this huge well advertised move in the long end, we are at no higher yields than multiple bottoms last year.

I'm not saying it's not true, and that this is the bell for the downward break, but the charts don't reflect that. We are firmly in support. If support is broken, than yes, I'll be selling rates. But as far as I'm concerned this looks like the same buying opportunity we had last year.

Many thanks for your long interest in our service and the informative reports which you also provide.

Thanks also for a good question of general interest. I think subscribers pay us to anticipate, sensibly, rather than just point out confirmation of trend reversals, which on this 10-year T-Bond chart would probably require a sustained break above 3% to 4% over the potentially lengthy medium term.

So why the earlier warnings which did not work out? I think we saw clear evidence of base development between May 2003 and up until June 2007, characterised by a steep decline followed by higher reaction lows. However, that recovery quickly unravelled with the onset of the severe credit crisis recession, which broke the rising lows on the yield chart, and QE helped to drive yields to record or near-record lows.

The percentage volatility increase that we have been seeing on this historic semi-log chart above is a bottoming characteristic. It is also an approximate upside down mirror image of the topping activity shown between February 1980 and June 1984.

At this point I have to ask, are we likely to see a repeat of the 2008 credit crisis or just an interminably long slump, à la Japan? Theoretically, anything is possible but I doubt it, not least because the Fed threw an enormous amount of QE at the economy to prevent destructive deflation. Instead, we have mostly positive deflation coming from Technology. Over six years since the credit crisis recession, I am now looking for further evidence of economic recovery. More importantly, so is the Fed.

Musings From the Oil Patch June 15th 2015

Thanks to a subscriber for this report by Allen Brooks for PPHB. Here is a section:

While Dr. Larsen believes the suburbs are not going away, he points out that they are not like the suburbs in the 1950s. Both parents are often working and school activities are no longer at the schools but miles away at soccer fields and violin teachers. As a result, there will be opportunities for different transportation solutions. Dr. Larsen pointed to Mercedes' Boost business, where minivans drive children after school, but rather than school buses they drive them door-to-door. Parents can track their children with smart phone apps and the minivans have both a driver and a concierge on board. The driver cannot leave the minivan but the concierge can walk children to the door or their after-school activity. In his view, Americans will not give up their own cars. “Americans like to do everything in cars.” He pointed out that Americans eat in cars, drink in cars, have entertainment in cars, change clothes and have sex in cars. People often sleep in their cars and spend a lot of time waiting for their children. As Dr. Larsen points out, “Driving is really the distracting thing we do in cars.”

While it would appear that little has changed about the desire, need and use of automobiles, what has changed is the inside of the vehicle. “Screens have become more important,” said Dr. Larsen. You can tell how old a car is by its screen, or absence. Leased vehicles may be refurbished more often in order to make them appear newer. Therefore, it is likely there will be fewer new models but more new screen updates. Computer controls within vehicles will become smarter and more intrusive. You won’t be able to enter long addresses into navigation systems while you are driving, but only when you are stopped. After a vehicle has stopped, seat controls will allow you to put your seat back further, letting you work, sleep or watch television from the driver’s seat. The issue will become balancing personalization versus privacy. Sensors in smart phones and vehicles will allow insurers to monitor how you drive and whether you are using your phone while driving. As the nation develops “pay as you drive” car businesses or fuel taxing, Dr. Larsen suggests there are legal issues needing to be resolved, suggesting that the pace of these Technology transitions may not be as quick as assumed, then on the other hand they could happen faster.

Regardless of how one feels about the potential for autonomous vehicles, electric cars or even hydrogen fuel cells, consumers expect to see more technological gadgetry in their new cars, not least internet connectivity. Auto manufacturers have introduced a lot more added extras over the years with on-board self-diagnostic equipment now ubiquitous. It is reasonable to assume consumer expectations will only become more demanding as reliance on mobile interactivity becomes further ingrained in societal norms.

Facebook's Oculus unveils final Rift headset, new controller

This article by Troy Wolverton for San Jose Mercury News may be of interest to subscribers. Here is a section:

Company officials said the Rift headset will come with a stand-alone sensor that will sit on users' desks. That sensor will track users' head movements as they are wearing the device and their hands when they use the Touch sensors.

But the company held off on announcing many of the details that will be crucial to its success. Oculus has not yet said precisely how much the Rift will cost, which retailers will carry it, when exactly it will be hit store shelves, or how many games will be available when it launches.
Oculus officials said they plan to release more information about the device at the company's Connect conference in September.

The number and diversity of games available for the Rift could be a big potential trouble spot. Oculus only demonstrated three games at the event Thursday, none of which represents a blockbuster title like "Halo" or "Call of Duty." Although one of the games shown is being produced by Insomniac Games, the makers of the "Resistance" series of games, Oculus did not show off any games from any of the major game companies, like Electronic Arts or Activision.

The success of new game systems is frequently determined by the number and range of games available for them. Fledgling systems can often suffer from a chicken-and-egg type scenario: consumers won't buy them until more games are available, while developers won't create games for them until a significant number of units are in consumers' hands.

There is a wide range of potential applications for virtual reality devices from entertainment to exercise and shopping. This is an emerging Technology which has been evolving for a long time but is only now reaching commercial scale.

Three years ago Bloomingdales installed Facecake’s virtual dressing room and Swivel Technology which has not yet gained widespread traction. The virtual reality retail application pioneered by Context Solutions still has a long way to go if it is to represent an interactive product. This article by Heather Somerville also from the San Jose Mercury News site dated 2012 is useful for context.

This article by Will Shanklin for Gizmag may be of interest to subscribers. Here is a section:

Perhaps game consoles (appropriately) will be the most likely role models for VR platforms. As a child in the 80s, my first experiences with the Atari and NES kindled a wide-eyed sense of wonder that's harder to replicate as an adult. Though those same games only give me slight glimmers of that feeling today, VR rekindles that childlike sense more than any form of entertainment since (certainly more than today's cinematic AAA video games or fads like 3D movies ever did).

Gaming spent many years as a "kids' product," but as that first generation of child gamers grew up – and realized there was no reason for them to leave their hobby behind – it blew up as a lucrative industry that now knows no generational boundaries (well, almost no boundaries – gaming demographics do still lean more towards younger adults than older ones).

Perhaps, like gaming, VR will start with the most wide-eyed of users, and only gradually erode the stigmas and unfamiliarity that keeps the rest of the world from joining the party.

So what do we think? Well, in our eyes, any Technology that can rekindle, and perhaps surpass, the pure joy and awe of playing Super Mario Bros. or Mike Tyson's Punch-Out for the first time – only 30 years later – has a great shot at widespread success. Whether it's in a year or a decade, it may simply be a matter of a) getting VR to a consumer-ready, high-quality stage and then b) getting enough people to try it. That first step began years ago, but the second step starts tomorrow.

As a child of the ‘80s and a watcher of Star Trek the Next Generation in the ‘90s I was one of those who was excited about the impending wide scale release of virtual reality Technology that did not happen. It takes a long time for new Technology to advance enough for it to become a major new consumer product. NASA was one of the primary early developers of the Technology in the 1980s. They envisaged virtual reality as a way for astronauts to control robots remotely in order to reduce the risk to human operatives. The results of DARPA’s robotics competition earlier this week highlight how much robotics Technology has improved but also how far it still has to go.

From cars to power grids: battery technology from Daimler is accelerating the transition to renewable energy generation

This article from Daimler highlights its entry into the domestic and commercial energy storage sectors. Here is a section:

Daimler is entering into business in the field of stationary energy storage plants with its one hundred percent subsidiary Deutsche ACCUmotive. The first industrial-scale lithium-ion unit is already on the grid and is being operated by the partner companies The Mobility House AG and GETEC Energie AG. For business with private customers in the area of energy storage in Germany, Daimler AG is planning to collaborate with EnBW AG. Daimler is also aiming to enter into cooperation with other sales and distribution partners both in Germany and at international level. "Mercedes-Benz energy storages provide the best confirmation that lithium-ion batteries Made in Germany have a viable future," says Harald Kröger, Head of Development Electrics/Electronics & E-Drive Mercedes-Benz Cars. "With our comprehensive battery expertise at Deutsche ACCUmotive we are accelerating the transition to sustainable energy generation both on the road and in the field of power supply for companies and private households. The Technology that has proven its worth over millions of kilometres covered in the most adverse conditions, such as extreme heat and cold, also offers the best credentials for stationary use. We have been gathering initial experience in this field since 2012."

Daimler was in the news last month for its introduction of driverless haulage vehicles to Nevada following the state’s legislation on autonomous vehicles. The company’s entry into the domestic and commercial energy storage sectors is equally ground breaking and suggests it has ambitions of being a pioneer in the future of transportation and energy storage.

Platinum sector faces Kodak moment in fuel cell technology

This article by Clara Denina & Silvia Antonioli for Mineweb may be of interest to subscribers. Here is a section:

The world’s three largest platinum producers Anglo American Platinum (Amplats), Impala Platinum and Lonmin are all investing in projects related to fuel cell technologies, which generate electricity that can power vehicles by combining hydrogen and oxygen over a platinum catalyst.

But analysts doubt fuel cell vehicles will rival the growth of their electric counterparts, mostly because battery recharging stations are less costly and already more widespread than hydrogen refuelling stations.

“As out of the two new technologies only fuel cells use platinum, I guess the miners think they have no choice,” Macquarie analyst Matthew Turner said. “But people are buying electric cars…and that’s not the case for fuel cells.”

Amplats, which has invested about $35 million in the last five years in companies developing new uses for platinum, mostly through fuel cell Technology, is mindful of the stakes.

“I don’t want Anglo American Platinum, or any of our partners or customers to be a Kodak,” Amplats Chief Executive Chris Griffith said last week, referring to the once mighty photography pioneer that was slow to transition to digital photography.

Platinum miners are not the only companies making big bets on hydrogen fuel cells. Toyota’s decision to release its Mirai fuel cell vehicle later this year and to open its patents to developers highlights their efforts to pioneer new technologies. After all it was Toyota’s Prius that was the first mass market hybrid vehicle.

Nevertheless, electric cars are gaining increasing traction as solar cell efficiency increases. There is also the potential for wind turbines to be smaller and less noisy. With the advent of home batteries the outlook for electric vehicles is looking even more promising.

High Prices for Drugs Attacked at Meeting

This article by Joseph Walker for the Wall Street Journal may be of interest to subscribers. Here is a section:

Dr. Saltz said the combination regimen’s benefit was “truly, truly remarkable for a disease that five years ago we thought was virtually untreatable.” But he said that combining the drugs would cost around $295,000 a patient over nearly one year, which he called unsustainable. If all U.S. patients with metastatic cancer took drugs priced at $295,000 a year, it would cost $174 billion to treat them all for just one year, Dr. Saltz said.

“The unsustainably high prices of cancer drugs is a big problem, and it’s our problem,” Dr. Saltz said, calling on industry, physicians and insurers to work together with government to address the issue.

Dr. Saltz’s estimate of the combination’s cost was based on the average wholesale price of each drug individually and the average weight of a U.S. adult. Opdivo and Yervoy are already approved individually to treat melanoma patients, but not in combination with each other.

BioTechnology companies have in many respects taken over the risk of developing new therapies and medicines from the more established pharmaceutical companies. As a result their products have tended to be more expensive when first released as companies try to make the best commercial utility of their patents before they expire. Nevertheless, is it is seldom good for business when doctors make public comments on the expense of products not least by highlighting the conflict of interest in they receiving a commission for prescribing them.

Email of the day on how to make best use of the Service

I am trialing your service. You speak in the daily service about your and David's favourite views. Could you tell me where I can find these and also could you recommend how I can get the best understanding of value from your site. Many thanks.

Thank you for taking the time to trial our service. FullerTreacyMoney is content rich so we understand that it may be overwhelming for new subscribers to figure out how best to use what we offer.

Every day we post a number of articles in Comment of the Day which we believe are of interest either in themselves or because they related to major issues or investment themes. We record a daily audio commentary to put what happened that day in context and to point our short-term movements in the market. As someone just getting acquainted with the Service I would suggest listening to one of the Friday Audios. This is when we put forward our longer-term outlook for the various different asset classes and would be the most accessible way of figuring out where we stand on various topics.

I would also suggest playing around with the Chart Library. Add instruments you are interested in to your Favourites so you can monitor your portfolio and watch list. Our comprehensive globally oriented Chart Library is updated daily with close to 15000 stocks, bonds, indices, funds, currencies and commodities.

We also tell you exactly what we are doing with our own money both from a trading and investment perspective as it happens.

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Good News America: Saudi Vies for Great Satan Status in Iran

My thanks to a subscriber for this informative article by Roula Khalaf for The Financial Times. Here is the opening:

It’s not quite the Great Satan — at least, not yet. But it’s an enemy that the Iranian regime and the people can unite against

Now that Iran’s Islamic government is close to a nuclear deal with the US and other world powers, the traditional “death to America” slogan is losing its lustre but the loathing of Saudi Arabia is gaining appeal.

Though this is happening by accident more than design, driven by a stand-off in Yemen between Iranian and Saudi proxies, it is blissfully convenient for Iran’s rulers.

Iranians never learnt to hate America despite their leaders’ best efforts to whip up resentment. It certainly won’t grow easier to convince them of devious American plots if a nuclear accord is signed.

When it comes to Saudi Arabia, however, Shia Iranians are happy to bash their Sunni neighbour. Persian-Arab enmity goes back centuries; Iranian-American hostility is only a few decades old. “People in Iran love Americans, and Saudi Arabia is the one country that everyone hates,” one political analyst tells me. “If it’s not the Great Satan it’s only because it’s not that important.”

Indeed, in my own meetings in Iran, there are sometimes awkward moments: someone casually drops a disparaging remark about Arabs then realises I come from Lebanon and reassures me Iranians love the Lebanese but less so Gulf countries. In Lebanon, of course, Iran has Hizbollah, its most prized proxy.

I heard Saudi leaders denounced as “immature children” who bomb fellow Muslims in Yemen and join hands with jihadi terrorists in Syria and Iraq. It’s impossible to convince anyone that the Islamic State of Iraq and the Levant (Isis), which threatens the Saudi regime possibly even more than it threatens Iran, is not a Saudi creation. The notion that Saudi Arabia should reject an Iranian role in the affairs of other Arab states also meets with incredulity. A common language (Arabic) doesn’t give one country the right to claim authority over another, say Iranian officials.

Thanks to Technology, the USA no longer has the same vital interests in the Middle East, although it would understandably like to prevent the region’s wars and terrorism from spreading westward. If ongoing Sunni-Shia conflicts threaten the Middle East’s oil production, the USA can quickly ramp up its shale oil output, avoiding a repeat of recessions caused by earlier energy crises.

Many other countries could do the same. If they follow the USA’s energy policies, from shale oil and gas to solar-led renewables, in 20 to 30 years time the Middle will have the luxury of consuming all of its own oil and gas.

Vortex bladeless turbines wobble to generate energy

Looking somewhat like a giant reed gently swaying in the wind, the new Vortex bladeless wind-driven generator prototype produces electricity with very few moving parts, on a very small footprint, and in almost complete silence. Designed to reduce the visual and aural impact of traditional spinning-blade turbines, this new device takes advantage of the power contained in swirling vortices of air.

Many opponents of spinning wind turbines point to their supposed danger to birds and other flying animals, as well as their rather noisy operation and – particularly in commercial installations – their enormous size. Though these may well be excuses by those who prefer to stay with older electricity generating technologies that they know and trust, standard wind-driven turbines do have these issues and this tends to hold back their universal acceptance and use.

This is where the creators of the Vortex bladeless believe that their device has the advantage. A relatively compact unit, it relies on the oscillation of its reed-like mast in reaction to air vortices to move a series of magnets located in the joint near its base to generate electricity.

Though obviously not as efficient as a high-speed, directly wind-driven turbine, this is offset by the fact that the Vortex has fewer moving parts and is, according to the creators, up to 80 percent more cost effective to maintain. Coupled to the notion that it supposedly has a greater than 50 percent manufacturing cost advantage and a 40 percent reduction in its carbon footprint compared to standard wind turbines, the system also seems to offer direct economic advantages.

We've explored a number of bladeless wind-turbines before – the Solar Aero turbine being one (though, by definition, not really bladeless as it merely covered the spinning blades with a housing) and the Saphonianbeing another. The latter being more of a true bladeless "turbine," it still required hydraulic actuation of pistons to generate electricity, so its efficiency was probably not all that great (and, to be perfectly frank, it was not strictly a turbine either as it had no spinning parts).

The Vortex, on the other hand, is purported to take advantage of the swirling motion of wind and not direct force like the aforementioned units. This means that it can generate energy from the repeating pattern of vortices (known as the Kármán vortex street), which are generated as the air separates to pass by a blunt body, such as the Vortex structure itself.

This also means that groups of Vortex units can be huddled closer together as the disruption of air movement in the wind stream is nowhere near as critical as it is when positioning standard, blade-driven wind turbines. This will also help ameliorate the inherent efficiencies in each unit as they can be grouped much closer together than their standard turbine counterparts and, therefore, potentially generate more power per square meter.

For years I have ranted about contemporary windmills and wind farms, because of their expense, maintenance costs, inefficiencies, noise, ecological damage to birds and other wildlife, and visual blight on the landscape. In contrast, the vortex bladeless turbines are a vast improvement.

What never ceases to amaze me, although I comment on it all the time, is the incredible inventiveness of people all over the world, in response to a needs-must requirement to protect ourselves and our planet from potential calamities such as manmade global warming and ‘peak oil’. In fact, only a decade ago it was still fashionable to assume that the cost of crude oil would continue to rise remorselessly, ruining our economies in the process. Today, thanks to Technology, ever higher oil prices are only an OPEC pipedream.

Musings From the Oil Patch May 19th 2015

Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report. Here is a section:

It is possible that what is happening in China with respect to EVs and hybrid vehicles is a precursor of how America’s vehicle sales and distribution models will work. In response to air pollution and vehicle congestion in major cities, China has begun a strategic initiative to build EVs and is encouraging foreign manufacturers and their partners to join the effort. China expects as many as 40 new EV models go on sale in the country this year, triple the number of new EV models available two years ago. As described in an article in Business Week, Toyota Motors (TM-NYSE) will only market an EV in China as it is committed to hydrogen-powered vehicles as a better alternative to EVs elsewhere. In fact, its dedication to hydrogen-powered vehicles is why Toyota ended its all-electric Rav4 EV crossover partnership with Tesla Motors, Inc. (TSLA-Nasdaq).

China has new emission guidelines that call for a 28% improvement in average per vehicle fuel consumption by 2020, something that likely requires manufacturers to embrace plug-in EVs. Since China controls the permitting of new manufacturing facilities, automakers are almost forced to embrace EVs if they want to have plants capable of manufacturing new vehicles. According to an analyst with A.T. Kearney in Shanghai, China, all the new EV models coming to market may enable the industry to get 1-2 million EVs and other new energy vehicles on the country’s roads by 2020. That achievement, however, will still fall well short of the government’s target of five million EVs being on the road.

While China may be the model, the Technology still is short of delivering a reasonably-priced EV with a traveling range similar to that of an ICE vehicle, or roughly 200 miles on a single charge. There is also the issue with fast charging of EVs, as drivers will measure charging times against the length of time they must spend at the gas pump filling up their ICE vehicle. Environmental concerns are an important consideration for EVs, but they were largely bought by people more interested in impressing their neighbors with their statement about environmental concern than their economics. The fact these clean-fuel vehicles are now being traded in for conventionally-fueled vehicles at an accelerating rate suggests that economics are clearly trumping environmental considerations. Whether this is a good thing or not remains to be seen, but the fact it is happening tells us how powerful the pocketbook is for consumer purchasing decisions. It also tells us that auto manufacturers need to address the shortcomings of EVs and hybrids if they want them to become a competitive auto market segment. Then again, those manufacturers may just elect to let the draconian U.S. fuel-efficiency standards force consumers to buy these less desirable vehicles.

As the world’s largest car market, China’s regulatory structure will make waves around the world. If China is insisting on electric vehicles in order to contain pollution then car manufacturers will have little choice but to build them.

An additional thought with regard to range anxiety: A large number of people, at least in Southern California lease they vehicles. In order to get the best price for the vehicle at the end of the lease, mileage has to be kept low. This means that many people rent a car for long trips and use their own car for commuting. I wonder if it is conceivable that the same model will expand beyond SoCal with the advent of electric vehicles which may or may not have overcome their range issues within the next decade.

For More Than Just Gold Bugs BitGold Platform Makes Debut

Thanks to a subscriber for this interesting report from Dundee Capital Markets. Here is a section:

Deposit/Redeeming Funds: Users have the option to deposit funds to six different global vaults administered by BRINKS – Toronto, London, Zurich, Dubai, Hong Kong and Singapore. After choosing the vault location users have five deposits/redemption methods available through 106 global reference currencies: 1) Direct Bank Deposit – INTERAC, SEPA,; 2) Bank Transfer – SWIFT, Wire; 3) Credit/Debit Cards – VISA, MasterCard, China UnionPay; 4) Virtual Currencies – Bitcoin (Ripple coming soon); 5) Cash via BitGold ATM Machine. Once funds are deposited, gold is acquired within 1% of the official spot rate and “allocated” to that particular customer through the company’s patent pending AURUM system. We believe most customers are likely to wire cash direct to a bank account. Using debit or credit cards to deposit cash becomes an acquisition cost for the company as merchant fees would be greater than the 1% deposit fee charged.

BitGold is not a deposit taking institution – BitGold does not take deposits or hold user funds in any way – the company simply offers a platform to acquire, store and transact with gold. Therefore it has no liability or indebtedness to a customer.

Storing Gold: Gold is fully insured (by Lloyds of London) and stored for free at any six global vaults (costs BitGold 0.12% pa). The gold is vaulted under the customer’s names and allocated storage within a separate within a separate legal entity. There is little counterparty risk as AURUM only buys/sells gold through the London Bullion Market (LBMA) and/or COMEX meaning each gold bar has verifiable chain of custody, beginning with the refiner and assayer. There is no maximum amount of gold that can be purchased and the minimum amount is 0.001g or about $0.05.

Making retail transactions with gold has long been an ambition of hard money advocates but it has been unrealisable until now. AuEx Ventures rebranded itself with the catchy moniker BitGold earlier this year and there is no denying that the premise of the company will appeal to a certain demographic. However while BitGold is willing to accept Bitcoin in return for gold, that would appear to be the only link between the two. More broadly it highlights how Technology is enhancing the methods with which we can transact and how various items can represent value.

SMA Solar Jumps in Frankfurt as U.S., Japan Sales Narrow Losses

This article by Stefan Nicola for Bloomberg may be of interest to subscribers. Here is a section:

SMA Solar Technology AG, a German solar company that’s cutting a third of its staff to reduce costs, rose to a three-week high in Frankfurt after first-quarter sales jumped and losses narrowed.

SMA climbed as much as 5.9 percent to 14.50 euros, the highest intraday level since April 23, after saying sales grew 28 percent to 226 million euros ($254 million) and a loss on earnings before interest and taxes narrowed to 5.4 million euros. Sales were driven by large-scale solar projects in North America, Japan, the U.K. and Australia, it said.

“With the sales generated and the order backlog at the end of the first quarter, we have already achieved more than 60 percent of our sales target for the year,” Chief Executive Officer Pierre-Pascal Urbon said. “The earnings situation developed better than planned, partly due to the reduction of fixed costs already initiated and to exchange rate effects.”

Solar cells produce direct current but if you want to it to power your home, heat your water or sell electricity back onto the grid it needs to be inverted into alternating current. Therefore everyone who buys solar cells must also buy an inverter. While SMA Solar is a global leader in manufacturing inverters it is not the cheapest.

These 10 Pieces of Art Just Sold for Almost $800 Million

Here is the opening of this informative article from Bloomberg:

The art market is on such a tear even the insiders are scratching their heads. Since New York’s spring sales started last week, at least $2.1 billion of art has been sold at Christie’s and Sotheby’s, with the top 10 lots accounting for almost $800 million.

Christie’s said collectors from 35 countries were bidding at its May 11 sale while Sotheby’s said clients from more than 40 countries were out in force the next evening. They jockeyed for Impressionist, modern, postwar and contemporary art.

“There’s a lot of money out there and people are chasing great works,” said Mera Rubell, who, along with her husband, Don, runs a private museum in Miami showcasing their collection. “Now the young artists are selling for millions.”

That means bargain hunters will be sorely disappointed: Picasso and Monet may be at record highs, but prices for living (if not quite young) artists are nipping at their heels. The 60-year-old Christopher Wool’s canvas spelling “Riot” in chunky black letters sold for $29.9 million — the same price paid for a 1948 Picasso portrait of his lover Francoise Gilot.

Records were smashed. In just 11 minutes, bidding for a Picasso surged from $100 million to $160 million before settling at $179.4 million, the most expensive work ever purchased at auction. The value of the work increased by 462 percent.

These astonishing art prices tell us several things. 1) What we already knew is that leading stock markets have done very well. 2) Liquidity is abundant. 3) The deflation that we are experiencing is mostly positive and created by Technology. 4) Confidence among wealth creators is very high. 5) The global economy is much more likely to expand than contract.

This article by Francis X Govers III for Gizmag may be of interest to subscribers. Here is a section:

Urmson's statements came in the form of a post on Backchannel, which followed an Associated Press report revealing the accident count in the wake of a new California law requiring Google and others to report accidents involving its self-driving cars to the state. Google reported three accidents between May 2014 and May 2015, while Delphi, which has its own version of a self-driving car, an Audi SQ5, reported its vehicle was struck while waiting to turn at an intersection and not under autonomous control.

In his post, Urmson details that the Google Cars were rear-ended seven times by other cars, side swiped twice, and hit once by a car running a stop sign, with the majority of the accidents occurring on city streets rather than highways. The 1.7 million miles (2.7 million km) the cars are reported to have traveled combines the distance traveled autonomously and under manual control.

The more data that is recovered from self-driving cars, the more confidence we can have that they are approaching commercial utility. Last week’s announcement that Nevada is pressing ahead with legalising autonomous vehicles is a major step forward for companies like Daimler and Google pioneering the rollout of this Technology.

The rise of electricity storage Something for everybody

This article by John P. Banks for the Brookings Institute may be of interest to subscribers. Here is a section:

In sum, there is great potential for storage both in front of the meter and on the customer side of the meter. Costs need to come down, but the longer-term trajectory indicates that this will happen, and policies and regulations to incentivize storage need to continue to be implemented to spur the creation of markets. The DOE's QER is a step in the right direction, calling for the establishment of a framework and strategy for storage and flexibility.

In the near-term, it is likely that most of the market development and storage capacity deployed will be at the grid-scale in competitive markets such as PJM, but the SCE procurement certainly highlights the impact of supporting policy and regulation in spurring competitively procured PPA-type arrangements. In addition, California's investor owned utilities have initiated the first round of storage auctions in response to the state's mandate, with final project selection and submission to the California Public Utilities Commission for approval this coming fall.

In the longer-term, solar-plus-storage could become increasingly economic on the customer side. Indeed, as Hamilton of the Electricity Storage Association described, the three biggest storage markets in the residential sector are California, Arizona, and Hawaii and what they all have in common is lots of solar. But beyond selected markets, residential-scale storage systems such as Tesla's PowerPack won't likely lead to mass defection from the grid in the next five to 10 years. The important point, however, is that Tesla's announcements and all the other recent news is exciting because it shows the progress and potential of a Technology with multiple applications and benefits across the grid, providing something for everybody.

In my review of utility grade energy storage companies last week, I highlighted that the sector has been in existence for a number of years but it is Tesla's high profile into the sector that has ignited media interest. We are still in the very early stages of this evolution and it is likely to persist into the lengthy medium term.

Daimler Freightliner keeps on truckin with driverless evolution

This article by Robert Wright may be of interest to subscribers. Here is a section:

But when the vast truck is on the public road, a message on the dashboard tells Mr Urban that a program called “Highway Pilot” is ready to take over. After pushing a button on the steering wheel, the truck steers, accelerates and brakes without the intervention of Mr Urban, an engineer at Freightliner’s headquarters.

Germany’s Daimler, Freightliner’s parent, has hailed the Inspiration — which was granted permission on Tuesday to operate on Nevada’s roads — as the first autonomous truck licensed to operate on public streets.

But while the state’s decision is significant, the step looks more evolutionary than revolutionary. Daimler portrays the Inspiration as the next step from vehicles that warn drivers when they are leaving their lane and control braking if too close to the vehicle in front.

Increasingly stringent regulations on the amount of time a driver can remain behind the wheel before taking a break and the constant drive to improve fuel efficiency represent powerful cross currents in the haulage sector. While the roll out of autonomous personal vehicles might be exciting, the use of this Technology in the commercial sector is even more revolutionary.

Mining companies and large farms were the first to use autonomous vehicles. However it is a major leap to move from an uninhabited area to the highway where people’s lives are at stake. None of the proposed technological innovations would be possible without the combination of advances witnessed in the global positioning, computing, big data, robotics, sensory and wi-fi sectors.

SEC Urges Advisers to Draw Up and Implement Cybersecurity Plans

Thanks to a subscriber for this article from the SEC by Steven Maimes. Here is a section:

The Division has identified the cybersecurity of registered investment companies (“funds”) and registered investment advisers (“advisers”) as an important issue. Both funds and advisers increasingly use Technology to conduct their business activities and need to protect confidential and sensitive information related to these activities from third parties, including information concerning fund investors and advisory clients. This guidance update highlights the importance of the issue and discusses a number of measures that funds and advisers may wish to consider when addressing cybersecurity risks. Because of the rapidly changing nature of cyber threats, the Division will continue to focus on cybersecurity and monitor events in this area.

Cyber-attacks on a wide range of financial services firms highlight the need for firms to review their cybersecurity measures. Discussions concerning cybersecurity with fund boards and senior management at advisers during the course of the Division’s senior level engagement and monitoring efforts also stressed this need, as did input from the Office of Compliance Inspections and Examinations’ review of adviser cybersecurity practices.

In addition, the Cybersecurity Roundtable hosted by the Commission last spring highlighted the importance of cybersecurity and the issues and challenges it raises for the financial services sector.
In the staff’s view, there are a number of measures that funds and advisers may wish to consider in addressing cybersecurity risk, including the following, to the extent they are relevant:

The fact that the financial advisor sector is susceptible to cyber criminals is a further iteration of the trend where any company that holds potentially privileged information with regard to their clients is under threat. At FullerTreacyMoney we do not hold credit card details on file which removes the potential for hacking. Additionally we use the most up to date Technology available to secure our database. As a web-based business we regard this as the equivalent of investing in a safe and alarm system for a jewellery store. I suspect that the majority of companies making financial consulting services available to customers do not have the same protections. This continues to represent a growth sector for security firms.

The Weekly View: Bull In A China Shop Or A Bubble About To Pop?

My thanks to RiverFront Investment Group for their ever-interesting letter, written this week by Chris Konstantinos and Adam Grossman. Here is a brief sample:

RIVERFRONT BOTTOM LINE: While certain parts of the Chinese market (small caps and “new China” Technology, in particular) are exhibiting classic signs of bubble behavior, we believe the H-share dominated MSCI China Index is still reasonably valued and likely to remain in a bull market trend for the foreseeable future. Furthermore, we believe the factors driving Chinese markets may also benefit tertiary markets related to China, including Hong Kong and perhaps Taiwan and Singapore. Thus, while we remain underweight on emerging market stocks in general, in our growth portfolios we have an overweight position in Emerging Asia (including China) relative to Latin America and Eastern Europe/Africa.

I suspect subscribers are up-to-date on China given the coverage it has received in this service in recent months. Nevertheless, The Weekly View provides a good overall summary for anyone less familiar with this increasingly important market.

Apple Says EU Irish Tax Probe Could Lead to Material Costs

Apple Inc. has raised a flag about the potential cost if the company is required to pay past taxes to Ireland as part of a European Commission investigation that started last year.

While Apple hasn’t been able to estimate the amount, it could be “material,” the Cupertino, California-based Technology company said Tuesday in a filing with the U.S. Securities and Exchange Commission. It had said in January that such an action could “adversely” affect its cash flows and financial condition.

The European Commission last year said it was looking into whether Ireland improperly gave Apple’s two subsidiaries state aid. In September, the commission said Irish tax authorities failed to conform to international guidelines when they “reverse engineered” an agreement with Apple to determine the company’s bills. The findings were preliminary.

“The company believes the European Commission’s assertions are without merit,” Apple said in the filing. “If the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the company past taxes covering a period of up to 10 years reflective of the disallowed state aid.”

The European Commission’s review of state aid can take more than a year and decisions can be challenged at the European Court of Justice in Luxembourg.

Apple “did not receive selective treatment and was taxed fully in accordance with the law,” the Irish Finance Ministry has said.

Over a four-year period, Apple shifted $74 billion in profits to an Irish entity that had no “tax residence” anywhere in the world, and thus owed minimal income taxes to any country, the U.S. Senate Permanent Subcommittee on Investigations found in 2013. Apple finished the most recent quarter with $194 billion in cash and securities. More than $171 billion of that was held outside the U.S., according to Apple.

Not to be too cynical but the EU needs money and Apple has a stash. In fact, most governments are short of cash, including the US mentioned in the last paragraph above, and Apple is not the first Autonomy to be challenged by tax authorities.

This latest warning from Apple (daily & weekly) is almost certainly responsible for the share’s wobble over the last two days, after its run-up to new highs. Moreover, the share had a downside key day reversal on Tuesday.

Takeaways from RSA 2015; Next Generation Threats Putting Jet Fuel in the Cybersecurity Engine for 2015/2016

Thanks to a subscriber for this note from FBR Capital Markets which may be of interest to subscribers. Here is a section:

This week, we attended the RSA Conference 2015 in San Francisco where hundreds of cybersecurity vendors (and tens of thousands of attendees) were present, with the core focus being the next generation threat environment. Coupled with data points in the field in recent months and solid 1Q earnings results so far, our conversations at the RSA conference this week have left us incrementally positive on the next-generation cybersecurity space as a whole. Security vendors of all shapes and sizes are seeing massive demand in the field, given a sense of urgency at the enterprise to upgrade legacy systems in order to protect against network vulnerabilities and avoid the reputational damage of becoming another high-profile attack (e.g., Anthem, Sony, JPMorgan, etc.). To this point, we picked up data points indicating a likely discernible step-up in cybersecurity budgets and potential deal sizes, as our conversations with key enterprise and government IT decision makers (CIOs, etc.) indicate they plan to increase security spending by an estimated ~28% in 2015. One CISO from a large Fortune 100 financial organization told us, "I came here to RSA with double the security budget I had last year to figure out how we can finally protect our network and cloud infrastructure. Our CEO wants me to call him tonight with an update." With enterprise and government customers seeing a massive uptick in threats, malware, and attacks on networks, we are seeing a clear changing of the mindset. Many CIOs have focused significantly more resources toward this "epidemic," as one IT product manager from Europe told us. Overall, we come away from the RSA Conference increasingly confident in the advanced security software space, as we believe next-generation cybersecurity spending is "white hot" as the spotlight on these technologies appears to be accelerating focus on protecting the enterprise/cloud/ big data and leading CIOs to spend in this high-priority area.

When the President of the United States’ personal email is hacked we can conclude the situation is serious. This follows high profile events that cost companies fortunes as well damage to their reputations and hackers even averted the opening of a movie. It is reasonable to assume that companies will be boosting their defences.

The government and corporations will need to increase spending to help avoid the threats that exist today. However these threats are constantly evolving so the growth of the security sector represents a major development theme within the Technology sector.

Audi just created diesel fuel from air and water

This article by Eric Mack for Gizmag highlights the benefits improving solar cell efficiency could potentially have for the wider economy. Here is a section:

Sunfire claims that analysis shows the properties of the synthetic diesel are superior to fossil fuel, and that its lack of sulphur and fossil-based oil makes it more environmentally friendly. The overall energy efficiency of the fuel creation process using renewable power is around 70 percent, according to Audi.

The fuel can be combined with conventional diesel fuel, as is often done with biodiesel fuels already.

The Dresden pilot plant is set to produce about 42 gallons (160 l) of synthetic diesel per day in the coming months, and the two companies say the next step is to build a bigger plant.

"If we get the first sales order, we will be ready to commercialize our Technology," von Olshausen says.

Sunfire anticipates that the market price for the synthetic diesel could be between 1 and 1.5 Euros per liter, which would be nearly competitive or a little more expensive than current diesel prices in Europe, but the actual figure will be largely dependent on the price of electricity.

One of the issues hydrogen fuel cell and similar technologies face is that they are dependent on the availability of cheap electricity to drive the process of separation or combination. The commercial utility of a water-to-diesel project as outlined above will be contingent on the cost of electricity coming down. As such the improving efficiency of solar cells and improvements in battery Technology represent a major step forward for such technologies as the cost of electricity would be free from volatility and could conceivably trend lower in real terms over time.

Amazon, Microsoft Profit From Cloud as Nasdaq Reaches Record

This article by Tom Giles for Bloomberg may be of interest to subscribers. Here is a section:

Minutes after the Nasdaq Composite closed at a record, three of the biggest bellwethers in Technology reminded the market precisely why investors are so bullish on companies that do business through the Web.

Amazon.com Inc. for the first time broke out sales from its division that sells computing power and software via the Internet, reporting a 49 percent jump last quarter. Microsoft Corp. posted profit that topped analysts’ estimates, also underscoring healthy demand for software delivered through the cloud. Google Inc. benefited from rising volume of online ads.

The numbers are a testament not only to the endurance of the Internet as a conduit of commerce and information, but also to the ways it has revolutionized how the world’s biggest corporations operate. All three companies have been at the heart of these changes since the Web’s inception as a business tool, and are now vying for a bigger slice of the still-fledgling market for cloud computing.

Google is seeking to extend its lead in online search and advertising, Amazon is spending billions of dollars to expand in e-commerce and data centers, and Microsoft is building on its dominance of the business-software market.

“We are innings one or two of the cloud,” said Kim Forrest, an analyst at Fort Pitt Capital Group Inc., which oversees about $1.8 billion in Pittsburgh.

This is a big day for the Nasdaq. Back in 2003 no one anticipated the Index would surmount its bubble peak in little more than a decade. Of course the relative weightings of the Index have changed almost beyond recognition in that time but above all else, the Nasdaq’s performance is a testament to how successful the USA is at creating companies that fill market niches we never knew existed.

Interactive biotechnology learning and design using games and remote-control labs

This article from Kurzweil Accelerating Intelligence may be of interest to subscribers. Here is a section:

The team also constructed a probiotic biology cloud lab using BPUs capable of carrying out remote-controlled experiments to stimulate biological materials, such as cells, and measure the biological responses. Students and scientists can send instructions to a robotic lab and get back experimental results.

The team constructed this BPU by using LEGO Mindstorms to create a liquid-handling robot. This robot traveled over a flatbed photo scanner. The scanner held petri dishes containing the slime mold Physarum, which eats oatmeal.

The researchers incorporated the BPU as a lab component in a graduate level theory class. Using remote-control interfaces on their smartphones, students ordered the robot to drop oatmeal onto specific petri dishes. The software allowed them to choose different droplet patterns.

The scanner recorded how the Physarum followed each trail of oatmeal dots by “sniffing out” chemotaxis cues in the petri dishes. (Chemotaxis refers to how microorganisms respond to chemical stimuli in their environments.)

The team built three BPUs, each holding six petri dishes. All three units were housed in a server rack typically found in a cloud computer site. “Our prototype BPUs supported 18 users and allowed us to assess the scalability of cloud labs,” said Zahid Hossain, the Stanford doctoral student who worked with Riedel-Kruse on this third project. “I want to see advanced BPUs supporting many different types of experiments and thousands of different users.”

“The obvious next application is online education at scale that includes true biology experiments, also opening new opportunities for learning-research. And cloud labs can change how we work as scientists.” Riedel-Kruse said.

Open source computing has been around for years and has been a wonderful enabler for the app market not least because there are so many independent programmers who have the wherewithal to deliver products based on their pet projects. Creating an open source environment for the biology/ biomechanics/nanotech space should have a similar enabling effect and is a further example of the accelerating pace of technological innovation.

Oil Slump May Deepen as US Shale Fights OPEC to a Standstill

The US shale industry has failed to crack as expected. North Sea oil drillers and high-cost producers off the coast of Africa are in dire straits, but America's "flexi-frackers" remain largely unruffled.

One starts to glimpse the extraordinary possibility that the US oil industry could be the last one standing in a long and bitter price war for global market share, or may at least emerge as an energy superpower with greater political staying-power than Opec.

It is 10 months since the global crude market buckled, turning into a full-blown rout in November when Saudi Arabia abandoned its role as the oil world's "Federal Reserve" and opted instead to drive out competitors.

If the purpose was to choke the US "tight oil" industry before it becomes an existential threat - and to choke solar power in the process - it risks going badly awry, though perhaps they had no choice. "There was a strong expectation that the US system would crash. It hasn't," said Atul Arya, from IHS.

"The freight train of North American tight oil has just kept on coming. This is a classic price discovery exercise," said Rex Tillerson, head of Exxon Mobil, the big brother of the Western oil industry.

Mr Tillerson said shale producers are more agile than critics expected, which means that the price war will go on. "This is going to last for a while," he said, warning that any rallies are likely to prove false dawns.

The US "rig count" - suddenly the most-watched indicator in global energy - has fallen from 1,608 in October to 747 last week. Yet output has to continued to rise, stabilizing only over the past five weeks.

There is no doubt that US fracking is a very adaptable business and the combination of Technology and experience is making the industry much more efficient. Nevertheless, today’s higher production will wane at current prices, as the yield from shale formations inevitably declines rapidly, necessitating additional drilling slightly further along the shale formation. Companies will be less willing to continue drilling with WTI crude in the $50s region, especially as their hedged prices at higher levels begin to expire in 2016. Additionally, plenty of oil industry workers have been laid off this year and it will take a little longer to get them back if the price of oil does rise.

Tesla Wants to Power Wal-Mart

This article by Dana Hull for Bloomberg may be of interest to subscribers. Here is a section:

Jackson Family Wines, based in Santa Rosa, has a new partnership with Tesla involving battery storage and several vehicle charging stations, according to the February issue of Wine Business Monthly. The winery declined to comment.

Mack Wycoff, Wal-Mart’s senior manager for renewable energy and emissions, said the company is intrigued by energy storage. “Instead of pulling electricity from the grid, you discharge it from the battery,” he said. “Ideally you know when your period of peak demand is, and you discharge it then.”

Mike Martin, Cargill’s director of communications, declined to provide details about how the company plans to use Tesla batteries at the Fresno plant. The 200,000-square-foot facility, one of the largest of its type in California, produces nearly 400 million pounds of beef each year.

Janet Dixon is director of facilities at the Temecula Valley Unified School District in southern California, which plans to install solar panels at 20 of its 28 schools this summer. Dixon said that SolarCity is the solar provider, and five of the facilities will have Tesla batteries.

“We spend roughly $3 million a year on electricity, and most of that is lighting and air conditioning,” said Dixon. “We are going solar to reduce our overall costs and the battery storage should help us manage our peak demand.”

Tesla trades on aggressive multiples. Since its car sales are a fraction of even the smallest auto manufacturer, it will be quite some time before the company will compete on that front even if one assumes that large numbers of people will be driving electric vehicles 10 years from now. Batteries are a much bigger story for Tesla which is why they are investing so much capital in building a “gigafactory” which they anticipate will deliver the economies of scale necessary to drive down the cost of their products.

At the present moment almost no one has a battery in their home. As solar Technology improves and the prospect of containing volatility on energy spending becomes a realistic possibility demand is likely to increase. At the present moment the solar cells companies like SolarCity are installing in homes are not particularly efficient. However, as the efficiency rates of laboratory tested products reach commercialisation the energy generation capacity of one’s home will rapidly improve. Therefore the efficiency of solar and the potential demand landscape for home batteries are linked.

Meet the Silicon Valley companies that top the list of cybersecurity innovators

Thanks to a subscriber for this article from Silicon Valley Business Journal. Here is a section:

The Cybersecurity Ventures second-quarter report lists Milpitas-based cybersecurity and malware protection business FireEye as the No. 1 hottest cybersecurity company. AlienVault and Norse of San Mateo also topped the list. Silicon Valley companies Splunk, Beyond Security, Palo Alto Networks, Intel Security Group, Caspira and Proofpoint also ranked in the top 30.
Cybersecurity Ventures, founded in 1999 and based in Menlo Park, is a research and market intelligence firm.

“FireEye is continuing to grow its global customer base and employee headcount, while getting kudos for its Technology platform and product lineup, alliance partner integration, channel program, service and support from the entire cybersecurity community,” said Steve Morgan, CEO of Cybersecurity Ventures and editor-in-chief of the Cybersecurity 500, in a statement. “FireEye is a leader in IT and cloud security, and it's added to that by becoming a top brand in the burgeoning mobile security sector.”

As banking, retail, insurance and entertainment move increasingly online, credit card companies have been some of the greatest beneficiaries because they insure purchases against fraud. Nevertheless, identity theft is the fastest growing crime in the USA, not least because chip and PIN Technology is so underused and because Trojans can reside on one’s computer for lengthy periods without detection.

As cyber threats become more sophisticated the requirement for greater security measures remains a growth industry and one which is increasingly competitive. This is creating demand both for software and hardware solutions.

The list of the sector’s most significant companies in the above article highlights just how many are still privately held. Clicking through the constituents of the cyber security section of the Chart Library there are clear winners and losers.

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